Draft Insolvency Act 1986 (Amendment) (No.3) Regulations

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The Chairman: Order. I apologise to the hon. Gentleman for interrupting him again, but it would be better if he examined the explanatory notes relating to the regulations. He is wandering wide of the mark once again.

Mr. Waterson: Quite so. I shall conclude my remarks, but want to finish on that particular matter. The explanatory notes to which I referred state that during the past three years, an average of 500 company voluntary arrangements were agreed annually, and one wonders what proportion might have been beneficiaries of the moratorium arrangements, had they been available.

Mr. Prisk: In my experience, many small business organisations have taken the view that a threshold of

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£3.5 or £4 million would be more representative. Does my hon. Friend agree with those eligibility criteria?

Mr. Waterson: The honest answer is that I do not know.

One of the main difficulties—it is my key point, but I do not want to labour it and you would not let me, Mr. Atkinson—is that the regulations are so narrow in their application. Once limits are set—whether the existing ones under schedule A1 or the extra ones applied in the regulations—people are left on either side of the line. Time scale is important and, on any view, a short moratorium is surely a good thing. An element of consensus is necessary and it is also in the control of a third party—a nominee with whatever qualifications. Why cannot it be made available to large as well as small companies? We had the same debate over the Enterprise Bill. A company employing hundreds or thousands of people could make even better use of the short moratorium than a small company—perhaps one with few employees but substantial assets, as my hon. Friend said.

Let me put a final couple of questions to the Minister. Will he confirm that the maximum initial moratorium period is only 28 days? It can be ended even sooner by the withdrawal of the nominee's consent to act, a court decision or whatever. In any event, I understand that it automatically expires after 28 days. It can be extended by agreement or by application of the court, but we need not go any further into that. It does seem a short period, so would the Government give further consideration to lengthening it, perhaps in future regulations? While it is in force, it stops floating charges crystallising, stops creditors taking action and stops new security being given over the company's assets during the moratorium period. Above all, it gives the management of a company, its directors and shareholders, the opportunity to try to get out of trouble under the moratorium's protection. That seems eminently sensible.

I do not understand why the Government are trying to limit the effect of the powers when they should be trying to make them available to companies of all sizes. The powers may not always be appropriate and sometimes the position is irretrievable, so no agreement can be reached and no capable nominee found to take on the task. However, what is wrong with the initial criteria in schedule A1 and why are we introducing further criteria? We are all keen to hear the rest of the debate and to hear what the Minister has to say. However, I am seriously considering inviting my hon. Friends to divide on the regulations, because they are too restrictive.

5.5 pm

Mr. Prisk: As some hon. Members know, I take a keen interest in the small business market and am therefore concerned about the criteria. I am aware of the need to stick strictly to the criteria. I am sure that I will be guided should I stray, Mr. Atkinson. Although I will attempt not to do that, I do not claim to be an

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expert in insolvency. I approach the issue as a small business man, if not in stature then in other aspects.

The regulations come when insolvencies are increasing. I think that the figure is 1.5 per cent. Therefore although the regulations are timely, I, like my hon. Friend, am concerned that the criteria are rather narrowly defined. We have already heard that practitioners in the market say that the moratorium should be in place. I am grateful to the Minister for explaining why there has been a delay. However, does he understand practitioners' concern that the lengthy delay over an Act that goes back two years means that a lot of businesses have not been able to benefit? I hope that he can tell us the expected date.

I am concerned about the narrow definitions. Why are we seeking to exclude medium-sized businesses? I was once a director of a £3 million business—not a huge concern or a multinational. Applying the figure of £2.8 million is a restrictive approach—

The Chairman: Order. The hon. Gentleman is going back over old territory. Those matters were determined previously. The Committee has been asked to consider the regulations that make certain companies ineligible for a moratorium. The hon. Gentleman is talking about a debate that we have already had. Would he kindly keep his remarks as close as possible to the regulations before us?

Mr. Prisk: I am grateful for that guidance and apologise if I have strayed too far. On ineligibility—it is a difficult word to struggle round—is the Minister sensitive to what I call ''the cliff edge''? When these criteria are so narrowly defined there is a danger that a business of £2.8 million will face that cliff edge. It is a common problem in business issues and I hope that the Minister can answer on that.

I turn to page 4 of the regulations and proposed new paragraph 4H(1). Will a project company have to satisfy all of the sub-criteria (a) to (e) or merely one or more of them? Secondly, when a company is not a ''project company'' under proposed new paragraph 4H(2), is it because it satisfies one or more of the sub-criteria or all of them? It is not clear from the drafting. In this day and age developers are very often involved in providing a service rather than an asset and one of the dangers is that property service companies could get caught out by the way that these definitions have been established. Those are my concerns. I understand that we need to focus on the specifics. To reiterate my colleague's comment, there is a worry that the regulations seem to have been drafted in a way that is too prescriptive and too narrow. I hope that the Minister can respond to that point.

5.9 pm

Mr. Wilson: I am grateful to members of the Committee who have raised some very reasonable points. I particularly welcome the general support that the hon. Member for Eastbourne (Mr. Waterson) gave at the beginning of the debate. He seemed to change his mind halfway through. I would resist the description of the Government's policy as piecemeal, but clearly there is some tidying up to reinforce the true purpose of the original measure. That is entirely proper and appropriate.

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The main concern expressed by the hon. Gentleman and the hon. Member for Hertford and Stortford related to the criteria affecting the size of companies. I need to place that in context and remind the Committee that this is only one measure; others are available to larger companies. The Insolvency Act 2000 was specifically aimed at providing small companies with a moratorium. Before that Act, small companies were effectively precluded from obtaining a moratorium, because the administration procedure is too expensive for such companies. That procedure still exists, but we acted to remedy the disadvantage for small companies. As we said at the time, that was the first step in our reform of insolvency law.

Hon. Members were concerned about the numerical limits that define a small company. I suppose that that will be the subject of legitimate debate in any discussion in which the term ''small company'' is used. However, it is important to point out that the criteria are not exactly rigid. Only two of the three have to be met, so some of the examples that have been given, such as that of a capital-intensive small company with a small number of workers, would come within the scope of the measure. The three criteria are turnover not exceeding £2.8 million, assets of not more than £1.4 million, and no more than 50 employees. Some of the companies that at first we would all think would be excluded may well be eligible.

Larger companies can use the administration procedure. As has been alluded to, that is being streamlined so that it is an even more effective tool to rescue companies generally. This measure is part of that wider picture.

Hon. Members questioned £10 million as a qualifying limit, but I think that that is still quite a large sum, and it is entirely compatible with our aim in making the moratorium available specifically to small companies. The figure was arrived at after consultation with interested parties.

Mr. Tony McWalter (Hemel Hempstead): I want to clarify my hon. Friend's thinking with two questions. First, is the thinking that £10 million is such a sum, given the size of the companies that would incur such a debt, that it could not be dealt with within the relatively narrow time span of a moratorium, and that the complexity would be such that significant additional time would be needed?

Mr. Wilson: That is a very helpful contribution. This is a pragmatic measure to help small companies in specific circumstances. It is pointless to legislate for such support if, in practice, the support will not be relevant. All the figures were consulted on widely to maximise their effectiveness and focus their relevance. My hon. Friend's point about the £10 million is taken. If we were talking about larger debts, this limited measure—this breathing space—would be correspondingly less likely to be effective.

Mr. McWalter: I realised that my previous intervention would be too long if I asked my second question then. Is it possible to protect people, given that the logic is to try to bypass companies that are set up especially to finance deals on securitisation of

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structured finance markets? Can a company that gets into difficulties organise a series of companies, each securitising at £8 million, to bypass the regulations?

 
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