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Lord McIntosh of Haringey: I am grateful to the noble Baroness, Lady Buscombe, for her explanation of the amendment. It seems to me to devalue the role of the company's shareholders, who, after all, will remain as the company's owners if the rescue is successful, in deliberations about whether or not a moratorium should be extended beyond the initial period of 28 days. We are talking about the extension of the moratorium and not the original setting-up of the moratorium.
We take the view that any decision to extend a moratorium should be considered by both the company and its creditors. The question at issue is that of agreement of a proposal which is presumably, and has to be, a proposal by the company's directors for a voluntary arrangement. I invite the noble Baroness, Lady Buscombe, not to lose sight of the fact that the Bill does not introduce a new voluntary arrangement procedure. The arrangement will still be under Section 1 of the Insolvency Act. It will still be the one for a composition in satisfaction of the company's debts or a scheme of arrangement of its affairs. It will still be a proposal made,
Baroness Buscombe: It may be helpful to interrupt the Minister now, because the last thing we want to do is destroy the possibility of a moratorium. That is not what we are seeking here. What we seek is a situation whereby the creditors do not lose out because the members have not had a meeting. The shareholders' position has already been devalued, in which case we believe the creditors' position should be paramount, and that loss of position would occur, in our view, if the members do not have a meeting and therefore the moratorium comes to an end.
Lord McIntosh of Haringey: The moratorium had already started because we are talking about extension, are we not? The moratorium had already started and for it to be in force by the end of the 28 daysin other words, not to have collapsedboth the members and the creditors must have had meetings, and they have to agree this will happen. A nominee has to be appointed and if necessary a successor supervisor must have been appointed; so the moratorium is in action at this stage.
These amendments are not about starting a moratorium but the extension of the moratorium. I do not know whether that is what is intended. I hope it is. We are saying that an extension of a moratorium has to be considered both by the company and its creditors. If it is not agreed by the company, for whatever reason, either by it not having a meeting or not turning up to one, it should not be extended and then one has to go into insolvency procedures. It could not be continued on the opinion only of the creditors; that would make no sense. The nominee could not continue with it or have any confidence that it had a reasonable prospect of success if the directors of the company have not had a meeting and responded.
Lord McIntosh of Haringey: If the directors are not willing to go on with a moratorium under any circumstances, whatever the reason, it has to come to an end. The nominee has to be satisfied that there is a reasonable prospect of success. Clearly, if the directors have no confidence, there is no reasonable prospect of success, the moratorium has to come to an end and the company has to be declared insolvent. The moratorium has failed and it does not matter exactly how it is brought to an end, whether by the creditors or by the company. But both sides have to be in agreement for it to be extended.
The noble Baroness said: In moving Amendment No. 8, I shall speak also to Amendment No. 9. Paragraph 10 of the new Schedule 1A provides for the nominee to advertise and notify the Registrar of Companies, the company itself and any petitioning creditor of the moratorium. In our view, all the creditors of the company should be informed of the moratorium, if only so that they know not to bother to take any of the steps referred to in paragraph 12.
In essence, let us suppose that an existing creditor is not paid and presents a winding-up order provision and then suddenly realises that what he has done is in breach of paragraph 12. What would happen if a debentureholder or a landlord takes proceedings for possession of the lease, or a sheriff wants to go in and levy distress, or the Inland Revenue wants to move? We believe that the provision is unworkable in its present form.
Lord McIntosh of Haringey: We are mirroring exactly, or certainly as far as applicable, the procedures that apply to the notification of an Administration and Winding Up Order under the 1986 Insolvency Rules. In those cases, at the outset, as we intend here, the commencement of the procedure is advertised and also notified to the Registrar of Companies so that the information is available on the company's public record, and then creditors are made aware of the start of the procedure when they are individually notified of the meeting of creditors. We do not see why notice in moratorium cases should be any different. We can see why all creditors, of whose claim the nominee is aware, should be made aware of the moratorium, but the moratorium is only 28 days and the nominee will be contacting all the creditors very soon after it comes into force to notify them of the meeting of creditors, to consider the proposal for a voluntary arrangement. They will obviously learn of the moratorium at that early stage.
To have to notify them twice in a short space of time would involve unnecessary expense. I cannot see what advantage would be gained from it. The moratorium procedure is a low-cost one, or it will not work at all. Although, strictly speaking, there is a possible interval in time between the notification which these amendments would provide and the notification of the meeting, it is a very short gap which does not justify departing from the procedure I have already described in regard to a winding-up order. In any case, if a creditor tries to do something forbidden by the moratorium, someone from the company will tell him or her when they try to do it. The same type of
The noble Lord said: New Schedule A1 sets out the effects of a moratorium under Section 1A of the Insolvency Act 1986. In general terms, it prevents third parties from enforcing their rights against the company during the period when the moratorium is in force.
Paragraph 12 of New Schedule A1 deals with the effects of the moratorium which substantially interfere with the rights of creditors. An administration order, of course, has similar effects. As the Minister is well aware, however, there is an important distinction. The moratorium which comes into effect in the case of an administration order is subject to the court's control within five days of the presentation of the petition. The moratorium under paragraph 12, by contrast, comes into effect on the authority of a person who is likely to have substantially less experience than an insolvency practitioner and perhaps less testing qualifications.
At the very least, the creditor must be entitled to apply to the court to take one or more of the steps referred to in paragraph 12, and not just in those instances where reference is made to the leave of the court. To save unnecessary applications to the court, the consent of the nominee should suffice as well. I beg to move.
Lord McIntosh of Haringey: The purpose of paragraph 12 of Schedule A1, as the noble Lord, Lord Kingsland, rightly says, is to provide protection from legal action for a company which is subject to a moratorium. In particular, there is a general ban on other insolvency-related procedures being commenced during the period of the moratorium.
If the courtor the nominee, for that matterwere able to grant leave to permit another insolvency procedure to be commenced during the moratorium, which would be the effect of these amendments, the situation would arise where two conflicting insolvency procedures could be on foot at the same timeone, a company voluntary arrangement moratorium and the other, a liquidation. Those procedures would have competing and conflicting purposes and that would not be a situation we would want to allow. The objective of a moratorium is to give the company the opportunity to put a rescue plan to its creditors.
We should not lose sight of the fact that the initial moratorium is very short. Any other co-existing or supplanting insolvency procedure would thwart that rescue attempt. For that reason we do not consider that the court should be able to permit other insolvency procedures to be commenced during a moratorium. The only exceptions to that principle should be where a petition is presented by the Secretary of State or the Bank of England in the limited circumstances specified in paragraph 12(5) of Schedule A1.
Clearly, where the nominee considers insolvency proceedings are appropriate, he can no longer be of the opinion that the voluntary arrangement has a reasonable prospect of being approved and implemented. It seems self-evident that he will have to withdraw his consent under paragraph 23 and bring the moratorium to an immediate end.
If a creditor considers another form of insolvency procedure appropriate he should tell the nominee who, if suitable, could withdraw his consent to act and, in that way too, bring the moratorium to an end. The meeting of the company's creditors would also provide the creditor with an opportunity to express his concerns and vote against any extension of the moratorium or approval of the proposed voluntary arrangement.
We do not consider it appropriate for the nominee to be allowed to authorise a breach of the statutory moratorium in respect of paragraph 12(1)(f)that is, leave to enforce securityor paragraph 12(1) (g)that is, leave to take proceedings. These are matters which, in our view, the court should decide.
The situation is rather different, however, in relation to the calling or requisitioning of a company meeting. The members of a company may need to meet in order to satisfy certain obligations under the Companies Act. That is why we have made provision for a nominee to consent to such a meeting under paragraph 12(1)(b) or for the court to give leave for such a meeting.
Lord Kingsland: I thank the Minister for his brisk reply. Perhaps I should say that he seems to exaggerate the problem of two separate winding-up procedures. If a winding-up order is made, the moratorium would come to an end. There would then only be one insolvency procedurethat of liquidation.
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