Enterprise Bill

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Mr. Djanogly: How did this time change arise? It seems to be yet another example of a mish-mash of two regimes becoming one regime. Other examples include the ability of companies to appoint their own administrative receivers, or of holders of floating charges to appoint their own administrators when previously they had to go to court. We see a merging of two regimes, which applies in this instance to insolvency practitioners saying that they need more time, and to the banks—having got to the Government—saying that if administrative receivership is being abolished, the new system should be as close as possible to it so that their interests are not prejudiced. Will the Minister comment?

Mr. Alexander: It was certainly good to see so many responses during the consultation process, not least from insolvency practitioners and the banks. I would be intrigued if anyone interpreted my earlier remarks to mean that we have somehow been ''got at'' by anybody, though we were determined to maintain an overall rationale for the Bill; providing greater certainty and streamlining to produce a more attractive and accessible process. Of course, that means making fundamental choices. I appreciate that the community of insolvency practitioners has some anxieties on this matter, but I hope that the Australian example, in which even more stringent time scales were set, will assure them that the process can work effectively for the relevant practitioners.

The time scale of 28 days was included in the original consultation documentation of July 2001, which was the White Paper. Less comment was then made on this issue than on others. The opportunity for ventilating the issues has been provided. Ultimately, the Government must choose.

Mr. McWalter: My hon. Friend has nearly convinced me. He has provided strong arguments for the 28-day period, but is not the small window of opportunity partly a consequence of what precedes the appointment of an administrator? We are trying to achieve a more co-operative relationship between a company in trouble and the available expertise. Will the Minister affirm that the Small Business Service could be revamped to become more accessible to small businesses and allow them to take advantage of help at an earlier stage?

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Mr. Alexander: I shall answer my hon. Friend with a couple of remarks. Our ambition is partly connected with time scale, but also, more broadly, with administrative re-fashioning. We want to make help more accessible to precisely the sort of firm that my hon. Friend describes. The profile of companies that have used the administration procedure up to now suggests scope for a rebalancing to address my hon. Friend's point. If managers or directors of companies can anticipate getting into difficulties and secure help earlier, it would be entirely consistent with the spirit of the Bill. We want to provide the means for a company to go into administration, but also to come back out again within fairly tight time scales, ideally in circumstances where company business and employment is safeguarded and the organisation can find a way forward.

I am aware of the role of the Small Business Service in supporting a range of different small businesses. I shall ensure that my hon. Friend's comments are brought to its attention.

Mr. Nigel Waterson (Eastbourne): We have had a remarkably long debate on an amendment that talks about leaving out ''28 days'' and inserting ''three months'', but it is an important point. It is not raised by the Conservative party, as the Minister pointed out. There is little political glory for anyone in these provisions, although when we come on to personal insolvency we will suggest that there is clear blue political water between the parties. We are simply trying to put across the views of practitioners who, in perfectly good faith and based on experience, say that some of these time limits are ''preposterous''. They should know what they are talking about.

I cannot comment on the experience in Australia. History dictates that it is dangerous to assume that one can transplant a set of proposals from one jurisdiction to another and it will all work out the same. Nor do I have the benefit of the briefing from the TUC on which the Minister and other hon. Members have relied. I assume that the TUC thought it not worth the postage to send it to Conservative members of the Committee. It would be an interesting acid test to see whether the TUC bothered to send it to the Liberal Democrats or which of the three factions within their membership it chose. The TUC briefing would no doubt have changed our views on the whole issue. If I thought that we would win the vote I would probably ask my hon. Friends to support me in pushing this to a vote. As I do not, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Waterson: I beg to move amendment No. 441, in page 253, line 25, leave out

    'Paragraph 49(1) shall not apply'.

The Chairman: With this it will be convenient to take the following amendments: No. 443, in page 253, line 33, at end insert

    'paragraph 49 shall apply unless the court orders otherwise but paragraph 51 shall not apply.'

No. 444, in page 253, leave out lines 34 to 43.

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No. 538, in page 254, line 7, leave out 'After the conclusion' and insert

    'Within seven days'.

No. 539, in page 254, line 8, leave out

    'as soon as is reasonably practicable'.

No. 540, in page 255, line 6, at end insert

    'and that he considers the proposals approved at the initial creditors' meeting are not reasonably likely to be achieved'.

Government amendment No. 491.

No. 541, in page 255, line 31, leave out paragraph 56.

No. 449, in page 266, line 39, leave out 'A creditors' and insert

    'The initial creditors' meeting, or any creditors' meeting held before that'.

Mr. Waterson: Yet again, I have not had the benefit of the TUC's views on these amendments, but I will struggle on regardless. I will speak to amendments Nos. 441, 443 and 444 together. As currently drafted, paragraph 50 allows the administrator to dispense with an initial creditors meeting in any of the circumstances mentioned in sub-paragraph (1). I hope that hon. Members are listening as I may ask questions at the end. At present, initial creditors meetings are held in all insolvencies, including administrative receiverships, where there is likely to be no return to unsecured creditors. Those are the circumstances foreseen by sub-paragraph (1)(b).

Even if there are no decisions for the creditors to make, such meetings provide them with an essential opportunity to raise matters of concern, both as regards the events leading up to the insolvency and the further conduct of the insolvency. The amendments are designed to change the Bill to require a creditors meeting to be held in all cases, with the proviso that the court can order otherwise, but to remove the creditors' powers in relation to the administrator's proposals under paragraph 51 where the creditors are unaffected by those proposals. I hope that that is clear.

Amendments Nos. 538 and 539 relate to what is supposed to be a key step in what is anticipated to be a fairly short period of administration. Putting in a definite period will provide a greater degree of consistency. Rule 1.24(3) of the 1986 insolvency rules requires the chairman of a voluntarily arranged meeting to report the results to the court within four days. We think that seven days should be perfectly reasonable in that context.

There does not appear to be any need to cause an administration to fail automatically on the rejection of a revision if the original proposals can still be pursued effectively. Amendment No. 540 would still give the administrator the protection he needs and brings administrations into line with the current practice on voluntary arrangements, which I am told has worked reasonably well.

Amendment No. 541 would simply leave out paragraph 56. That is based on the view that, in the interests of transparency and accountability, matters

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to be considered by creditors should always be considered at meetings. A meeting would also enable creditors to debate the issues among themselves and raise points and concerns of which the administrator may be unaware.

Amendment No. 449 concerns paragraph 96. Paragraph 96 allows an administrator appointed by the company to be replaced by the creditors at any time, which could make administrators reluctant to take on commitments and responsibilities. The amendment would provide that creditors could not replace the administrator once the initial meeting had taken place. The court would still have the power to replace an administrator. The amendment has the additional advantage of giving the administrator an incentive to hold the initial creditors meeting as quickly as possible. As I explained, if the amendments to paragraph 50 were accepted, there would always be an initial creditors meeting.

The amendments have all been suggested by accountants and practitioners in the field and are designed to make the system work more effectively. I commend them to the Committee.

Mr. Alexander: I shall speak first about amendments Nos. 441, 443 and 444. Although we agree that creditors should be fully involved, it is right and proper to focus their involvement in cases in which they have a financial interest. The amendments would create an obligation to convene a creditors meeting, or to seek leave of the court not to do so in all cases, including those in which it is unlikely that the unsecured creditors will have any financial stake. That would add to costs, burden the courts and reduce the returns for those creditors who have an economic interest.

Amendments Nos. 538 and 539 would require the administrator to report on any decision taken at an initial creditors meeting within seven days rather than as soon as is reasonably practicable. If the administrator is able to issue the report sooner than seven days, why should he not do so? The administrator should report as soon as is reasonably practicable, which is what the provision requires.

Amendment No. 540 relates to paragraph 53. The paragraph allows the court to make provision in cases in which an administrator reports to the court that a creditors meeting has failed to approve his or her proposals. In cases in which the creditors have failed to approve a revision of the administrator's proposals, the amendment would provide that the administrator only reported to court if he considered that the proposals approved at the initial creditors meeting were not reasonably likely to be achieved.

However, the amendment is unnecessary. The administrator is required to report the outcome of the creditors meeting to the court so that it has a record of the administration's progress. Paragraph 53 allows the court to make provision in such circumstances, but does not require it. In deciding what to do, the court is likely to attach a great deal of weight to the professional judgment of the administrator. If the administrator made it clear that he or she believes that the initial proposals that were

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approved by the creditors are still workable, and that the creditors were aware when they voted on the revisions that if they rejected the revisions the administrator intended to follow the initial proposals, the court would be likely to allow the administrator to continue with the administration and follow the initial proposals.

When creditors have rejected revisions to an administrator's proposals, it is right that the court should have the opportunity to consider the circumstances of the particular case and end the administration, or make an order if it thinks that is appropriate. However, the power is discretionary and will not prevent an administrator from pursuing proposals that have already been approved by creditors if the administrator persuades the court that that is the right way to proceed. I therefore ask the hon. Gentleman not to press the amendments.

Amendment No. 491 is a Government amendment. The Bill provides that a floating charge holder can appoint an administrator by the out-of-court route when there is an outstanding winding-up petition against the company. In such cases, the winding-up petition will be suspended rather than dismissed, as the court has not made an order on it. That will mean that the creditor concerned does not have to go to the trouble and expense of presenting a petition if the administration is not successful. Amendment No. 491 will allow the court to consider the suspended winding-up petition and make an order on it if a creditors meeting fails to approve the proposals put to it by the administrator, and the administration therefore does not reach a successful conclusion. I ask hon. Members to support this amendment.

Amendment No. 541 would remove the provision that allows a creditors meeting to be held by correspondence. The purpose of the provision is to prevent unnecessary bureaucracy and costs in cases in which the business that needs to be conducted at a creditors meeting can just as easily be handled by correspondence.

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The details of how the administrator should go about dealing with creditors through correspondence will be covered in the rules that accompany the new legislation. They will ensure that any correspondence is handled appropriately and fairly so that creditors are not disadvantaged. On the contrary, conducting business by correspondence will save creditors the time and expense of having to travel to meetings. I ask that the amendment be withdrawn.

I ask the Committee to resist amendment No. 449, which would restrict the creditors' ability to replace an administrator appointed by the directors or company to the period up to the initial creditors meeting. That paragraph relates to the replacement of those administrators appointed by the directors or company through an out-of-court route where there are no floating charge holders to veto the appointment. Although we do not anticipate that creditors in such a case would wish to replace the administrator as a matter of course—or indeed often—if the opportunity to do so is restricted only

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to the period leading up to the initial creditors meeting, they will have little opportunity to assess the office holder or his or her performance. It is likely that the first opportunity for creditors to interact with the appointed administrator will be the initial creditors meeting, so it does not seem appropriate that that should also be their last opportunity to veto the directors' or company's choice of appointment.

 
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