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Lord McIntosh: I will come on to the point about the leave of the court. If that happened, with or without the leave of the court, the receiver would be in charge of the assets of the companythat is what happens with receivership. He would assume control of all the company's assets and he would then presumably proceed, as receivers do, to dispose of them with a view to repaying the moneys due to the floating chargeholder, the debentureholder. We cannot see why a debentureholder should be the only creditor whose actions should not be stayed by the moratorium. If we are serious about giving companies the necessary short breathing place to put a rescue plan to all its creditors, then we have to reject this amendment. If not, the legislation, frankly, becomes a "dead letter". This could easily be a wrecking amendment.
We have provided that a company is only able to obtain a moratorium if the nominee is of the view that the directors' proposal for a voluntary arrangement has a reasonable prospect of being approved and implemented and also that the company is likely to have sufficient funds to enable it to carry on its business during the moratorium. Thus, any company that obtains a moratorium should stand a reasonable prospect of being able to agree and implement a rescue plan with its creditors. With the other safeguards in the Bill, that should give sufficient comfort to the creditors for the duration of the moratorium. If the debentureholder makes it clear to the nominee that the debentureholder, the floating chargeholder, is determined to go ahead and appoint a receiver and assume control of the assets of the company, I do not see how any nominee could have the necessary confidence that the proposal has a reasonable prospect of being approved and implemented.
In any case, the moratorium will be of a maximum period of 28 days and there are limitations on it being extended. We intend to allow secured creditorswhich include the floating chargeholderto vote for the full amount of their claims on any proposal for an extension of the moratorium beyond that initial period. So they will be able to have their say on whether or not the moratorium should be extended by any period up to a further two months.
If this amendment were to be accepted it could give rise to two conflicting and competing insolvency procedures at the same time; that is, the moratorium and the administrative receivership. In view of what I have said about control of assets, it would effectively wreck the moratorium.
If any creditor, and that includes a creditor who holds a floating charge, felt that a rescue via a moratorium would not work for some reason, he should express his concerns to the nominee. The purpose of that is to persuade the nominee that he must withdraw his consent to act and so bring the moratorium to an end. Under paragraph 23 of Schedule A1, the nominee is obliged to withdraw his consent to act if he forms the view that the proposed voluntary arrangement does not have a reasonable prospect of being approved or implemented or the company will not have sufficient funds to carry on its business throughout the moratorium.
The floating chargeholder may, perhaps, make it plain that he fully intends to appoint an administrative receiver the moment the moratorium comes to an end, and that may in itself affect the viability of the voluntary arrangement, which in turn may cause the nominee to withdraw his consent and end the moratorium. However, in the event that the nominee declined to withdraw his consent to act and the floating chargeholder was dissatisfied with that decision, application could still be made to the court under paragraph 24 to challenge that decision. Among other things, the court could bring the moratorium to an end and then the appointment of an administrative receiver could go ahead. We would expect any floating charge holder, who viewed a moratorium as pointless as he fully intends to appoint an administrative receiver, to approach the nominee to make that point. Because of his potential ability to wreck the implementation of an approved voluntary arrangement, it may well be that the nominee will feel the need to approach such chargeholders at an early stage to sound out their views on the proposed rescue attempt.
Lord Kingsland: I certainly could not have made my point at any greater length; but I might possibly have made it with greater clarity. Nevertheless, from the way in which the Minister has responded to me it is clear that he has understood what I am seeking.
Lord McIntosh of Haringey: I am willing to stand up and make the case about landlords and forfeiture of lease when we are debating an amendment on that point. I have listened to the lengthy exposition of the noble Lord, Lord Kingsland. I do understand the amendments correctly, and he has acknowledged that, but they would wreck the moratorium.
Lord Kingsland: The Minister will have the pleasure of responding to my noble friend Lady Buscombe, because it will be my noble friend and not I who will be advancing the amendment. Meanwhile, I beg leave to withdraw this amendment.
The noble Baroness said: In moving Amendment No. 14 I wish to speak also to Amendments Nos. 82 and 110. We are focusing here on what might be described as a long-standing omission or mistake in the Insolvency Act 1986. I refer to the ability of the landlord to effect peaceable entry during the period of a moratorium. We are very grateful for the discussions
We believe that this point must be carefully considered, as we discussed with the Minister. It cannot be ignored. We are therefore particularly interested to hear what the Minister has to say. On that basis we may or may not consider returning to the point on Report. I beg to move.
Lord McIntosh of Haringey: This is clearly a very important matter. We discussed it between the Second Reading and the Committee stage and I acknowledged clearly enough that we take this very seriously indeed. Perhaps I may start by marking the distinction between forfeiture of a lease, a floating charge and an administrative receiver. If a landlord forfeits the lease then the company loses the lease. That may or may not be critical to its ability to do business. Some businesses can continue, particularly in this electronic age, without having a lease. They could retreat to the back bedroom. However, if a floating chargeholder appoints an administrative receiver then the company loses control of all of its assets and there is no possibility of it carrying on or making a rescue attempt.
Having made that distinction between the debentureholder and the landlord, we recognise the importance that this issue may have in determining whether or not a successful rescue is achieved. We can understand the need to bring forward these amendments and we are grateful to have the opportunity to debate them. There are, of course, implications for bankruptcy cases as well. This is potentially a very complex and controversial area, which needs careful consideration before we legislate. That is why we did not put it into this Bill. This is a very modest Bill about a moratorium rather than a review of the whole of insolvency legislation. It is also why the joint DTI/Treasury review of company rescue mechanisms was specifically asked to consider the area separatelysome months agowhich it has done done.
It could be argued that there is no need to legislate to prevent landlords from effecting peaceable re-entry as steps can be taken to prevent that happening. For example, a landlord cannot effect peaceable re-entry if there is someone present at the premises at the time who opposes the re-entry. However, that may well involve incurring costs the company can ill afford. Additionally, a landlord who wishes to forfeit a lease by way of peaceable re-entry, other than for arrears of rent, must issue a notice under Section 146 of the Law of Property Act. A tenant then has the right to apply to the court for relief from forfeiture. As we understand it, relief is usually granted where the breaches are capable of remedy within a reasonable period.
However, that could also involve costs that the company cannot afford. Forfeiture is not a means of recovering outstanding rent but a longstanding right designed to allow a landlord to protect his interests in the property where there has been some act or omission on the part of the tenant. Furtermore, while other creditors can decline to offer further credit during a moratorium, if a landlord is unable to exercise his right to forfeiture where rent is not forthcoming he becomes an unwilling and involuntary creditorthough clearly he would not be alone in that respect. For instance, owners of leased assets are currently unable to take action under their agreements without the leave of the court while a moratorium is in existence.
However, we recognise that, where exercised, this self-help remedy can deprive a company of its trading premises and, in certain circumstances, wreck its business. Consultation on this particular matter is, however, important. The noble Baroness, Lady Buscombe, in her comments on consultation at Second Reading, suggests that she recognises that. Since Second Reading, therefore, we have put in hand a brief consultation on the point. We have requested views on the proposals that landlords should not be able to effect peaceable entry without consent or the leave of the court, while a company or individual is subject to a statutory moratorium in the context of an insolvency procedure.
The closing date for responses to this brief consultation process is 7th July. We intend that the matter will be determined in the context of the passage of this Bill through Parliament. By this I mean that it is unlikely to be in this House but we will reach a conclusion on it before the Bill leaves another place. I hope that will reassure the Opposition that we have taken seriously the views that were expressed at Second Reading and that this amendment would not be appropriate at this stage.
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