Enterprise Bill

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Mr. Djanogly: Having heard the debate so far, I would maintain that we are seeing a change of emphasis, as mentioned by the hon. Member for Orkney and Shetland, away from the prioritisation of the business towards a situation in which the survival of the company becomes the priority. I shall not go into that in great detail because I have discussed it previously, but it is an important issue.

The Minister believes that the interests of the business are important and that a court would interpret it in that way. Why can he not see that many people have a problem with that, and are saying that there will be a problem of interpretation? If he believes that that is the case, why can we not simply insert it into the Bill and make the position clear to everyone? The Government would do well to go away and have a little think about that.

However, there is a second leg to the series of amendments which we have not discussed much. It concerns the situation in which the decision has to be taken on when it is appropriate to save the company, or when the administrator has to decide to either wind up the company or start selling off its assets. The question that derives from the amendments is whether it should be the administrator's opinion that dictates what is to happen, or whether there should be an objective test. The Bill leaves the test as objective. I assume that the Government would assert that there are many interests at stake and that the court should decide the terms, and I see the sense in that line of argument. On the other hand, the amendments tabled by my hon. Friends and the Liberal Democrats take a position that the administrator should decide which course is best in the circumstances. That is the position of the CBI, PricewaterhouseCoopers and others. I understand why it is necessary in the circumstances of the Bill. Businesses are in favour of that position because they want speed and certainty in decision making, and if the test is open and objective, and it is a court process, it is likely that decisions will be dragged out and delayed.

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I support the amendments, but reluctantly. This is an instance of where the banks have had a significant say in the drafting of the Bill. They want the provisions to be as much like administrative receivership as possible. An administrator's view of how to proceed may not be objective. It will normally be a bank's view, as the banks usually appoint the administrators. A bank may want a rapid sell-off of assets when it would be better to run the company. There will often be a fine line between the two.

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The amendments assume that the administrators will always act in the best interests of the company, as they are required to do by statute, but, again, there may be a fine line. Some insolvency practitioners are better than others and, as in every profession, some firms are large and high powered and others consist of two men and a dog. Insolvency lawyers will say that they prefer to stay away from some insolvency practitioners and that some are seen within the profession as more professional than others. The problem with the Bill as drafted, which implies that there is objectivity, is that that cannot always be taken for granted.

The provisions are in many ways a botched job because they fall between two positions. The administration process is being consulted on with the banks, which are trying to make it as close as possible to administrative receivership. With the two distinct systems having gone, there could be a free-for-all.

The amendments, admittedly, would detract from the concept of parity between secured and unsecured creditors, but in the context of the Bill as a whole they would give some definition to a system that would be worse than the present one.

Mr. Alexander: I shall deal first with some of the specific points made by the hon. Member for Eastbourne and then with the points made by the hon. Member for Orkney and Shetland.

The hon. Member for Eastbourne paraphrased my position in a somewhat cavalier way. I did not say that only business rescue matters. It may be helpful if I clarify what I said. Of course we are not opposed to business rescue when that is the best outcome for creditors. When all things are equal it is better to rescue a company than to break it up. That is consistent with our ambitions in the Bill.

I shall assist the Committee by clarifying the relationship between paragraphs 3(1)(a) and 3(1)(b). Sub-paragraph (1)(b) would achieve a better result for a company's creditors, but we must recognise that sub-paragraph (1)(a), which would rescue the company, takes precedence when ''reasonably practicable''. Again, I refer hon. Members to the explanatory notes on that point.

The hon. Member for Orkney and Shetland asked whether I would be willing to pay due respect to the amendment suggested by the Law Society of Scotland. Of course I am happy to do that. It is part of a more general system that has served this and other Committees well, because it allows us to benefit from the expertise of outside professional bodies. Indeed, I am happy to record our gratitude for the work of a range of bodies in strengthening and informing the Committee's discussions.

The hon. Gentleman was kind enough to mention that I was still a member of the Law Society of Scotland. I merely make an observation on the transition from being a practising solicitor in Scotland to being a Member of Parliament. It is somewhat curious that, when one is elected to the House, one receives a letter from the Law Society of Scotland indicating that, although it was previously necessary to undertake continuing professional development in

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order to remain a member of the profession, it sees no requirement for continuing professional development for Members of Parliament. Whether it is correct in its judgment is a matter for the Committee.

Mr. Carmichael: The principal difference for me on becoming a Member—I was a solicitor in criminal practice—is that the criminals that I was used to dealing with had already been caught.

The Chairman: Order. Much as we non-lawyers enjoyed that exchange, I hope that we can stick to the Bill.

Mr. Alexander: I shall try to keep to the subject of debate.

Amendment No. 403 would specify that the first objective of administration was to rescue the company and the whole or part of its business. That is certainly the clear intention behind the new proposal, a point that I was happy to make in my introduction. As the hon. Member for Eastbourne said, there is no use at all in making the administrator try to rescue companies that are empty shells if it is done at the expense of rescuing viable businesses. However, we consider that the purpose ''to rescue the company'' self-evidently means to rescue it as a going concern, with the whole or much of its business intact, and that the courts would interpret the purpose in that way.

I draw the Committee's attention to the explanatory notes, which the hon. Member for Eastbourne was kind enough to identify in previous debates as being a useful source of expert guidance on the Government's intentions. The explanatory notes on the schedule underline the fact that we are confident that that purpose can be achieved by the statutory working offered in the Bill.

Amendments Nos. 460, 461 and 462 would put the breaking-up of the company and rescue of its constituent businesses on a par with the rescue of the company. Clearly, there will be some cases where the break-up and sale of some or all of a company' s individual businesses as going concerns would result in a better return to the creditors. When that is the case, the duty of the administrator under paragraph 3(2)(b) to act in the interests of the creditors as a whole will steer him towards that outcome. However, the amendments would go further than that; they would mean that in cases where all was equal, there would be no particular obligation on the administrator to rescue the company rather than breaking it up. That cannot be right, and we would therefore resist the amendments.

Amendments Nos. 404, 405, 575 and 576 deal with the ''reasonably practicable'' test that governs the new purpose for administration. The amendments seek to qualify this test by specifying that it means reasonably practicable in the opinion of the administrator. I, for one, would never suggest that the Law Society of Scotland's amendment might, in any way, be motivated by a desire for more work for Edinburgh lawyers; but we must be alive to the intention of the Bill, which is, whenever possible, to keep lawyers away

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from what otherwise would be more expeditious and business-friendly processes. That is exactly how the provision will work in practice.

The administrator is the person on the ground and in possession of all the facts, and he is best placed to determine whether a particular course of action is reasonably practicable, on the basis of his or her experience and professional judgment. It is not the practice of the courts to second-guess the commercial judgment of administrators in such cases, and we would not expect these provisions to be interpreted in that way. However, under paragraph 3(2), the administrator must have regard to the interests of the creditors, and we would not want to tie the test of what is ''reasonably practicable'' so closely to the administrator's opinion that his or her decisions were beyond legal challenge. For example, under paragraph 73, creditors or members of the company can challenge the administrator's decisions where their interest has been unfairly prejudiced. Decisions should also be open to challenge in cases where bad faith, for example, can be established. I therefore ask hon. Members not to press their amendments.

Mr. Waterson: Like many amendments, those before us were partly intended to allow the Minister to put on record the thinking behind the clauses so that the phalanx of professionals who closely follow our every word can find out what on earth will happen in practice. He has done that. On that basis, and for other reasons, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 486, in page 239, line 34, leave out 'exercise' and insert 'perform'.—[Mr. Alexander.]

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