House of Lords - Explanatory Note
Insolvency Bill [H.L.] - continued          House of Lords

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Schedule 2: Company voluntary arrangements

Part I - Amendments of the Insolvency Act 1986

77. This Schedule makes amendments to the provisions of the Insolvency Act 1986 relating to company voluntary arrangements where there is no moratorium. Paragraphs 78 to 84 summarise its principal provisions.

78. The nominee must state in his report to the court whether in his opinion the proposed company voluntary arrangement has a reasonable prospect of being approved and implemented. (Paragraph 3 of Schedule 2).

79. Amendments are made to the circumstances in which the court may replace a nominee in line with the new moratorium procedure (Paragraph 3 of Schedule 2).

80. A decision by the creditors' meeting to approve a proposed voluntary arrangement is to prevail where this conflicts with the decision by the meeting of the company, subject to the right of a member to challenge this on an application to the court (Paragraph 5 of Schedule 2).

81. The company voluntary arrangement will bind all of the company's creditors including unknown creditors who are entitled to claim from the company the dividends they would have received if they come to light after the voluntary arrangement has been completed. Such creditors may also make an application to the court on the ground that their interests are unfairly prejudiced by the voluntary arrangement that is approved. (Paragraphs 6 and 7 of Schedule 2).

82. It is an offence for an officer of a company to seek to obtain the approval of the members or creditors to a proposed voluntary arrangement by making a false representation or fraudulently doing, or failing to do, anything. (Paragraphs 8 and 12 of Schedule 2).

83. The nominee or supervisor is required to report suspected offences to the Secretary of State in England and Wales (and to the Lord Advocate in Scotland). The Secretary of State is granted certain powers to investigate such suspected offences (Paragraph 10 of Schedule 2)

84. There are also consequential amendments resulting from Clause 4 (Qualification or authorisation of insolvency practitioners) and other minor amendments of a clarificatory nature.

Part II: Amendments of the Building Societies Act 1986

85. This deals with the interaction of the company voluntary arrangement procedure with the Building Societies Act 1986. Principally it prevents a building society from using the company voluntary arrangement moratorium procedure.

Schedule 3: Individual voluntary arrangements

86. This Schedule makes amendments to the provisions of the Insolvency Act 1986 relating to individual voluntary arrangements. Paragraphs 87-95 set out its principal provisions.

87. Except with the leave of the court, distress may not be levied during the period of the moratorium which results from an interim order (Paragraph 2 of Schedule3). An example of levying distress is where a landlord seizes goods for outstanding rent.

88. The nominee must state in his report to the court whether he considers that the proposed individual voluntary arrangement has a reasonable prospect of success (Paragraph 5 of Schedule 3).

89. Amendments are made to the circumstances in which the court may replace a nominee in line with the new procedure (Paragraph 5 of Schedule 3).

90. An individual may put a proposal for an individual voluntary arrangement to his creditors without first having to obtain an interim order as is currently the case (Paragraphs 6 and 7 of Schedule 3).

91. The individual voluntary arrangement will bind all of the individual's creditors including unknown creditors who are entitled to claim from the individual the dividends they would have received if they come to light after the voluntary arrangement has been completed. They may also make an application to the court on the ground that their interests are unfairly prejudiced by the voluntary arrangement that is approved. (Paragraphs 9 and 10 of Schedule 3)

92. It is an offence for an individual to seek to obtain the approval of an individual voluntary arrangement by making a false representation or fraudulently doing, or failing to do, anything. (Paragraphs 11 and 14 of Schedule 3).

93. The nominee or supervisor is required to report suspected offences to the Secretary of State. (Paragraph 11 of Schedule 3).

94. The amendment to Section 387 provides the relevant date for determining claims where no interim order is obtained is the date on which the voluntary arrangement takes effect (Paragraph 13 of Schedule 3).

95. There are also consequential amendments resulting from Clause 4 (Qualification or authorisation of insolvency practitioners) and other minor amendments of a clarificatory nature.

Schedule 4 Part I: Minor and consequential amendments about disqualification of company directors etc.

96. All of the provisions in this Part amend the Company Directors Disqualification Act 1986. Paragraphs 97 to 101 refer to particular amendments.

97. Provision is made as to the court in which an application for a disqualification order under Section 6 of that Act should be made. For example, where the company in question is being or has been wound up by the court, the application is made to that court. Proceedings are not invalidated by reasons of their being taken in the wrong court. (Paragraph 5 of the Schedule).

98. Provision is made for Section 13 (criminal penalties for breach of disqualification order) and 15 (personal liability for company's debts where a person acts while disqualified) of the Company Directors Disqualification Act 1986 to apply in relation to Northern Irish disqualification orders. (Paragraphs 8 and 10 of the Schedule).

99. Provision is made as to which court can give a disqualified person leave to act as a director or as a receiver (other than an administrative receiver) of the property of a company or to be concerned in the promotion, formation or management of a company. For example, where a person is subject to a disqualification order made by a court having jurisdiction to wind up companies, that person is required to make his application to that court. If a person is subject to a disqualification undertaking, the application for leave has to be made to a court to which the Secretary of State could have applied for a disqualification order had he not accepted the undertaking. Special provision is made for leave in a case where a person is subject to more than one disqualification order or undertaking. The amendments also require the Secretary of State to appear on the hearing of such an application. (Paragraph 12 of the Schedule)

100. Regulations may be made for Northern Irish disqualification orders to be recorded in the register kept under Section 18 of the Company Directors Disqualification Act 1986. (Paragraph 13(5) of the Schedule).

101. Rules made under Section 411 of the Insolvency Act 1986 (Insolvency Rules) or any order made under Section 414 (Fees Order), 420 (insolvent partnerships order) or 422 (order applying parts of Insolvency Act to banks) of that Act may include provisions relating to Sections 1A (as inserted by Clause 6 of the Bill), 13 and 14 of the Company Directors Disqualification Act 1986. The first of those Sections relates to disqualification undertakings and the second and third (as they are going to be amended by the Schedule) to offences relating to the breach of disqualification undertakings or orders. (Paragraph 14 of the Schedule).

Part II: Consequential amendments of other enactments

102. Provisions in the Insolvency Act 1986, the Charities Act 1993, the Pensions Act 1995, the Police Act 1996 the Housing Act 1996 and the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 make reference to disqualification orders under the Company Directors Disqualification Act 1986. The paragraphs in this Part of the Schedule make consequential amendments to those provisions so as to give disqualification undertakings and Northern Irish disqualification orders the same effect in the context of each of those Acts, as a disqualification order made under the Company Directors Disqualification Act 1986. The Police Act 1997 is similarly modified but only in respect of disqualification undertakings.

FINANCIAL EFFECTS OF THE BILL

103. It is estimated that the change brought about under regulations intended to be made under the amendments made by clause 12 would result in an estimated loss of income to the Consolidated Fund of between £2m and £4m a year flowing from a reduced level of funds for investment by the National Investment Loans Office as trustees in bankruptcy elect to invest in government securities. There would also be an estimated loss, of the order of £2m a year, resulting from automatically paying interest on funds remaining in the Insolvency Services Accounts (ISA) to the estates of bankrupts. However, there would be a partially compensating increase in tax payable on the interest earned by those estates and an increase in the fees charged by the Department on investment transactions. It seems likely, therefore, that even after these charges, the costs of The Insolvency Service would continue to be covered by the total of recovered fees and investment income derived from the ISA. This assumption is made because in 1997/98 and 1998/99 investment income from the ISA totalled £51m and £47.5m respectively. Together with fee income recovered and appropriated in aid by the DTI, the surplus income to the Government over Insolvency Service costs has been £9.6m and £11.3m respectively

EFFECTS OF THE BILL ON PUBLIC SERVICE MANPOWER

104. It is not anticipated that the Bill will require any increase in the number of permanent staff in the public service.

SUMMARY OF REGULATORY APPRAISAL

105. The Bill will not impose any significant costs on business. A full copy of the Regulatory Impact Assessment document may be obtained from Ms S Roberts, Senior Policy Advisor, Policy Unit, The Insolvency Service, Policy Unit, 21 Bloomsbury Street, London WC1B 3QW. (Tel. 0207 291 6753).

EUROPEAN CONVENTION ON HUMAN RIGHTS

106. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement, before second reading, about the compatibility of the provisions of the Bill with the Convention rights (as defined by section 1 of that Act). Lord McIntosh of Haringey has made the following statement:

    In my view the provisions of the Insolvency Bill [H.L.] are compatible with the Convention rights.

COMMENCEMENT

107. A power is included in the Bill to bring its provisions (with the exception of Clause 13) into force by way of statutory instrument rather than bringing it into force on Royal Assent or on a date (or dates) specified in the Bill. Clause 13 which confers a power to make regulations comes into force when the Act is passed.

 
 
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Prepared: 4 February 2000