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Before Clause 39, insert the following new clause--

Solvency test of social landlord

(". The tests of solvency or otherwise of a registered social landlord shall be those specified in section 123 of the Insolvency Act 1986.").

The noble Lord said: It may be for the convenience of the Committee if I also speak to Amendment No. 134. The problem of solvency is one which has exercised many people and many minds which are

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more learned than mine. At the moment I am wholly unclear about what the Government mean by solvency in the case of a registered social landlord. Having followed the progress in this Chamber of the Insolvency Act, as it now is, in 1986, I think I am aware of what is insolvency in terms of a company under the Companies Act. Where I am in doubt is how the Government recognise--or how anyone recognises--solvency or insolvency in the case of a registered social landlord; in other words, in the case of a housing association.

I shall refrain from drawing the attention of the noble Lord, Lord Lucas, to the problem involved with the possible differential definition of solvency between a Companies Act company and a housing association or a registered social landlord which is not a Companies Act company. No doubt we shall discuss those matters further on Report. However, there seem to me to be some serious differences at the moment between the two. I should be grateful therefore if, in response to my amendment, the Minister would give the Committee a clear definition of what insolvency means in terms of a social landlord. What is the solvency test? Is it the same solvency test as in Section 123 of the Insolvency Act 1986, and, if not, what is it? If that is the case, how does that chime with other insolvency regulations? If, indeed, the Minister cannot give a true explanation, will he take this away and consider giving such an explanation when we reach Report stage?

I hope that I do not have to emphasise to the Minister that this is a question of enormous importance. Those who trade--even people who trade for non-profit, however that is defined, and we are not entirely clear on that--when insolvent commit criminal offences. That is particularly true of companies under the Companies Act 1985. I very much hope that the noble Lord will be able to give the Committee a clear and defined view of what solvency means in the case of a registered social landlord. If he cannot do that, I hope that he will take it away and give us such a definition when we reach the Report stage. I beg to move.

Lord Lucas: At the risk of getting a hasty note from the Box, I think the answer to the noble Lord's question is in the words "Insolvency, &c.". This is not really a section about insolvency; it is a section about insolvency and that sort of thing with "and that sort of thing" being rather loosely defined, and powers being there to modify and extend it to deal with any sort of problem which may arise which could tip a registered social landlord into the sort of difficulties from which the corporation would want to be able to dig it out.

Looking first at the particular amendment which the noble Lord, Lord Williams, has proposed--

Lord Williams of Elvel: Before the noble Lord goes on, he has referred to "Insolvency &c". That is in the rubric of the clause. The rubric of the clause, when it is enacted, is not part of the legislation.

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5.45 p.m.

Lord Lucas: I quite agree, but I hoped that it might give a clue as to where this part of the Bill is heading. We are not trying to redefine insolvency; we are trying to define a set of circumstances where the Housing Corporation should have to take action. Insolvency is the base of that. I address myself first to the particular amendment that the noble Lord, Lord Williams, has proposed. He will see that this section deals with much wider circumstances because the amendments he has proposed would prevent the powers in Clauses 39 to 49 taking effect where creditors are enforcing security for other reasons--for instance, where a property is being used for purposes not specified in the charge deeds. One such example, is if the housing association was running a bordello, and another is where a landlord who has received transferred local authority stock has failed to meet designated right-to-buy targets. These are clearly nothing to do with insolvency but they trigger events and securities and create the sort of problem one would meet with insolvency.

It is that whole set of circumstances that we are dealing with in these clauses. One might also suggest the case where lenders dissent from the terms of a proposed merger of two social landlords. We are dealing in these clauses with a much wider set of circumstances than insolvency. Financial failure among housing associations is, thankfully, as yet unknown. There are severe difficulties but, to date, meltdown has been avoided with help from the Housing Corporation. Therefore the use of the new powers that we propose will clearly not be an everyday occurrence. Indeed one might look at them as a backstop. The fact that they are there may well mean that under normal circumstances they are never used.

Lord Williams of Elvel: I am sorry to interrupt the noble Lord in mid-flight but he says that these are almost unknown circumstances. Nevertheless the clause deals with interventions by the corporation under the circumstances which--leaving aside the rest of it--I have described; that is, insolvency. It may be "Insolvency,&c.", but it is also insolvency. The question that I am putting to the noble Lord is not whether there has been any case of insolvency in housing associations; it is not even whether there has ever been a case of insolvency in Companies Act companies, because there have been many cases of insolvency of Companies Act companies; I am trying to elicit from the noble Lord a definition of what constitutes insolvency in a housing association. Is it that it cannot pay its bills over the next 12 months? Is it, alternatively, that it has a negative net worth? Is it, alternatively, that it has negative current assets? Is it, alternatively, that it is trading at a loss and that in the short term it cannot meet the provisions of that loss? I search for a definition. If a housing association is registered as a social landlord, should the Bill be enacted, what should it and the corporation regard as an issue which justifies intervention under this clause?

Lord Lucas: I hope that as I continue I shall throw some light on the noble Lord's question. However, the

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fundamental answer is that the Bill does not define insolvency. Those definitions are contained in other Acts. The Bill is concerned with consequences of events which occur when a company becomes insolvent.

Lord Williams of Elvel: I am sure that the noble Lord will throw a lot of light on the matter when he responds. However, perhaps he will be good enough to tell me in which sections of which Acts insolvency is defined for housing associations, or registered social landlords as we now call them. I know about the Companies Act. That information would remove the need for my amendment referring to the Insolvency Act 1986.

Lord Lucas: It is the Act which contains the governing law on insolvency. That is the Act which we would expect to apply to housing associations, not through the instrument of this Bill but because that legislation applies to them anyway.

The Bill is designed to deal with the consequences of insolvency, and events which have a similar effect to insolvency, to make sure that housing can be retained within the social sector rather than having to be disposed of on the open market with all the consequences that that would have for tenants.

I shall come to the ways in which the Bill works with the insolvency laws, but I do not believe that it is intended that the Bill should create any separate definition of insolvency. The triggering point is a step taken by someone, usually a secured creditor, which results in the social landlord being in danger of dissolution and its assets being sold in the private sector.

Clauses 39 to 49 are triggered by an event. I do not believe that there is any necessity in that process to define insolvency. One merely defines the set of events which trigger those clauses, some of which might involve an insolvency process, and some of which might be matters totally unconnected with insolvency but connected with the specific terms of a charge that a lender has over a piece of property.

Lord Williams of Elvel: I believe that this will be a continuing debate. Under the Insolvency Act 1986, the main burden of declaring a company insolvent is not on a secured creditor or a shareholder. It is on a board of directors which takes the view, on advice, that its company should no longer be trading. In other words, if it goes against the advice it will be trading when insolvent and trading unlawfully.

The noble Lord recognises the problem that I put forward. He states that events are triggered by a secured creditor. They are not triggered by a secured creditor but by a director of the company--under the Companies Act in the case of a Companies Act 1985 company.

Will the same arrangements be relevant for the council of a housing association? Are they relevant at present? If the council of a housing association decides under the terms of Section 123 of the Insolvency Act, even if it is an industrial provident society, "We cannot go on trading because we are insolvent", does that

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trigger the matters which the noble Lord explained to me under Clause 39 of the Bill? If that is the case, let us know it.

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