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Lord Lucas moved Amendments Nos. 149 and 150:

Page 25, line 16, leave out ("events") and insert ("steps").
Page 25, line 16, leave out ("occurs") and insert ("is taken").

The noble Lord said: I spoke to both of these amendments with Amendment No. 143. I beg to move.

On Question, amendments agreed to.

Lord Lucas moved Amendment No. 151:

Page 25, line 21, leave out from ("or") to end of line 23 and insert ("any person having a power of disposal in relation to the land").

The noble Lord said: In moving this amendment I shall speak at the same time to Amendments Nos. 153 and 154.

The current drafting of the Bill fails to include certain parties, such as mortgagees in possession, in the moratorium on the disposal of land. In order to be effective the moratorium should apply to any person who has a power of disposal in relation to the land. Amendment No. 151 achieves that.

It is possible that any of the steps described in Clause 39 may be rescinded during the period of a moratorium. The landlord might, for instance, have been able to satisfy the requirements of the creditor who sought to enforce their security. In those circumstances the threat to the future of the landlord's social housing will have receded, and the corporation will no longer need to develop a proposal. The need for a moratorium on disposals will also have disappeared.

Amendments Nos. 153 and 154 recast Clause 43 to give the corporation the power to terminate a moratorium if it believes that the continued management of the landlord's housing by a registered landlord can be achieved without making a proposal. I beg to move.

Lord Williams of Elvel: I am a little concerned about the wording:

I understand from the Minister's explanation that that means that organisations, such as banks, building societies or whatever, will have a charge over the land which is the subject of Clause 42. Whether that contains a power of disposal is a moot point as is the question of whether a charge in itself constitutes a power of disposal.

This may be a drafting point, but I should be grateful if the noble Lord could clear it up.

Lord Lucas: I cannot clear it up on the hoof. But I shall certainly write to the noble Lord.

Baroness Hamwee: This is similar to a point about charges, assignments and disposals which occurred earlier in the Bill. I believe that the noble Lord will find

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that he is satisfied with the response that comes via the Minister, because charges generally do contain assignments.

On Question, amendment agreed to.

[Amendment No. 152 not moved.]

Clause 42, as amended, agreed to.

Clause 43 [Period of moratorium]:

Lord Lucas moved Amendments Nos. 153 to 155:

Page 25, line 35, leave out subsection (1) and insert--
("(1) The moratorium in consequence of the taking of any step as mentioned in section 41--
(a) begins when the step is taken, and
(b) ends at the end of the period of 28 days beginning with the day on which notice of its having being taken was given to the Corporation under that section,
subject to the following provisions.").
Page 26, line 7, leave out subsection (4) and insert--
("(4) If during a moratorium the Corporation considers that the proper management of the landlord's land can be secured without making proposals under section 44 (proposals as to ownership and management of landlord's land), the Corporation may direct that the moratorium shall cease to have effect.
(4A) When a moratorium comes to an end, or ceases to have effect under subsection (4), the Corporation shall give notice of that fact to the landlord and the landlord's secured creditors.
(4B) When a moratorium comes to an end (but not when it ceases to have effect under subsection (4)), the following provisions of this section apply.
The Corporation's notice shall, in such a case, inform the landlord and the landlord's secured creditors of the effect of those provisions.").
Page 26, line 11, leave out ("occurs") and insert ("is taken").

The noble Lord said: I spoke to these amendments with Amendments Nos. 151 and 143. I beg to move them en bloc.

On Question, amendments agreed to.

Clause 43, as amended, agreed to.

Clause 44 [Proposals as to ownership and management of landlord's land]:

Lord Williams of Elvel moved Amendment No. 156:

Page 26, line 27, leave out (", so far as is practicable,").

The noble Lord said: Clause 44 deals with the proposals as to ownership and management of the landlord's land. Subsection (2) of the clause, as drafted, states that:

    "In drawing up its proposals the corporation ... shall consult the landlord and, so far as is practicable, its tenants".

I am not entirely certain that "so far as is practicable" is the right expression. I can understand that there may be some difficulty in consulting all the tenants, but I do not believe that such a general let out should be available to the corporation. I hope very much that the Government will find some rather better expression or give some better assurance as to what is meant than appears on the face of the Bill as drafted. I beg to move.

Lord Lucas: We have considerable sympathy with the sentiment behind this amendment. The period during a moratorium will be an anxious one for tenants as they wait to see how the future ownership of their homes will be determined.

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Were it not for the corporation's intervention at this stage, future ownership would be determined solely by the creditors; tenants would be completely sidelined, and their homes could be sold to an unregistered private sector landlord. The corporation will want to work for the benefit of tenants to avoid that--that is the primary purpose of Clauses 39 to 49--and will want, so far as possible, to consult tenants as it prepares its proposal.

We must bear in mind the constraints under which the corporation will be operating. It will have a very short period of time--possibly as little as 28 days--to undertake the complicated task of putting together a workable proposal. A detailed analysis of the landlord's assets and finances will be needed; intensive discussions with all the secured creditors will have to be held; possible alternative registered landlords will need to be identified and approached; and suitable arrangements will have to be made for the appointment of a manager to implement the proposal.

We should also bear in mind that the landlord may have hundreds, if not thousands, of tenants. While tenants are in many cases organised into representative groups and associations, that is not always the case. In times of stress, such as those confronting the tenants of an insolvent landlord, differences of opinion and factionalism among tenants' groups can all too easily develop.

It is right that the corporation should be required to consult tenants. But in the circumstances that I have described, that requirement must be tempered by a sensible appreciation of what can realistically be achieved. Placing an unqualified duty on the corporation to consult tenants could not only make the preparation of a proposal immeasurably more difficult, but would also expose the corporation to an increased possibility of legal challenge by any tenant who felt that the corporation had not discharged its duty fully. That could frustrate the implementation of a proposal, to no one's benefit.

I believe that the noble Lord agrees with the direction of our thought and merely questions the particular wording that we have chosen. We are content that the wording we have chosen will achieve the effect that we want; namely, the duty to look after the tenants is there but the corporation is not required to do anything which is impracticable. It has to take practical decisions, given all the constraints upon it.

We shall return to the wording when we come to Amendment No. 157. I hope that the noble Lord will feel that for this amendment and for Amendment No. 157 it is a reasonably well tried phrase, which will produce the right result if ever we come to such an unhappy pass.

Lord Williams of Elvel: I am grateful to the Minister for his response and for recognising my concerns. What he said makes very good sense. It must be the right direction in which to go. If I questioned the wording, it was simply to elicit from the Minister the kind of response that he gave. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

11 Jun 1996 : Column 1628

Lord Lucas moved Amendment No. 157:

Page 26, line 42, at end insert--
("( ) So far as practicable no proposals shall be made which have the effect that unsecured creditors of the landlord are in a worse position than they would otherwise be.").

The noble Lord said: I hope that this amendment will answer some of the questions raised earlier by the noble Lord, Lord Hylton.

Clause 45 provides that a proposal may be implemented only if the corporation has obtained the unanimous consent of the landlord's secured creditors. That clearly puts secured creditors in a powerful position. Each secured creditor has an effective power of veto, which none of the other parties--the landlord, tenants, or unsecured creditors--enjoys.

This balance acknowledges the reality of an insolvency situation. When a landlord has become insolvent it is the secured creditors' interests that come to the fore. They will have effective control over the housing on which they have secured their loans. If the corporation is to protect tenants and publicly-funded assets, it is the secured creditors with whom it must deal.

A landlord will have unsecured creditors, too, however, and the Bill as currently drafted makes little provision for them. In an insolvency situation unsecured creditors generally come off pretty badly and have to share between them whatever value is left after secured creditors have taken their cut.

So unsecured creditors will be at the back of the queue. But they should not then be further disadvantaged when the corporation steps in with its proposal. Because of the strong position of secured creditors, the corporation may feel under pressure to protect their interest in developing its proposal, to the possible detriment of the already weak position of unsecured creditors. That would not be acceptable.

We therefore want to amend the current Clause 45 to make it clear that the corporation must not develop a proposal which either deliberately or inadvertently leaves unsecured creditors in a worse position than they would be in were the corporation not to intervene. I hope that gives the comfort sought by the noble Lord, Lord Hylton, that there is no way in which secured creditors can put pressure on the corporation successfully to have the corporation develop a proposal which would disadvantage unsecured creditors.

Amendment No. 157 requires that, so far as practicable, no proposals shall be made which would leave unsecured creditors worse off than they would have been had a proposal not been made. The corporation will have to engage in a certain amount of speculative thinking about how unsecured creditors might fare if a proposal was not being made. It will not have a great deal of time in which to do so. That is why the qualification covering practicability has been built into this clause.

However, the corporation will be expected to take all steps practicable in the time available to assess the position of unsecured creditors and ensure that the proposal the corporation develops does not leave such creditors worse off than would otherwise be the case. In many instances unsecured creditors may be better off as

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a result of a proposal. For instance, the transfer of an insolvent landlord's debts to another, financially sound, landlord should put unsecured creditors in a better position. I do not say that that will always be the case; but it may often be. Whatever the situation, the implementation of a proposal should certainly not leave unsecured creditors still further out of pocket. The amendment is designed to avoid that possibility. I beg to move.

6.30 p.m.

Lord Hylton: I am somewhat reassured by the Minister's explanation in relation to unsecured creditors. I am also happy to note the reference to them on both pages 26 and 27. However, if the Minister felt able to write to me regarding the employment considerations and how these measures will work in practice I should be extremely grateful.

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