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Lord Kingsland: Perhaps I could just say to the Minister that the merits of our amendments are that,

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in so far as these things can be specific and measurable, they are unlikely to lead to an excess of ex post litigation. By contrast, the Minister's criterion is exceedingly vague and open to many interpretations and, therefore, likely to lead to prolonged disputes in the courts long after the company has been wound up.

I urge the noble Lord to reflect on what the opposition have said about this matter; and hope that he will come back at Report stage absolutely convinced that we are right. Meanwhile I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos.19 and 20 not moved.]

Lord Sharman moved Amendment No. 21:

    Page 15, line 31, at end insert—

("and for the purposes of this paragraph, "hire purchase agreement" shall not include conditional sale agreements, chattel leasing agreements or retention of title agreements").

The noble Lord said: As I speak to move this amendment standing in my name, it is to help me understand what I saw as a potential conflict between the definitions of what constituted a hire purchase agreement. By virtue of paragraph 1 of Schedule A1 a retention of title clause comes within the definition of a hire purchase agreement. In paragraph 16(2)(a) we also refer to a hire purchase agreement, or a conditional sale agreement. However, the hire purchase agreement is defined in paragraph 1 as including a condition of sale agreement as well as a chattel leasing agreement and retention of title agreement. It is not clear to me whether paragraph 16(2)(a) is intended to encompass the latter two types of agreement. If it is then I believe it needs to be specific, and if it is not then perhaps some further clarification would be useful. I beg to move.

Lord McIntosh of Haringey: I think I can answer the question simply. The current wording in paragraph 16 follows that used in the corresponding provision in Section 360 of the Insolvency Act 1986, with an extended definition of hire purchase agreement to include conditional sale agreements, chattel leasing agreements and retention of title agreements. The extended definition of hire purchase is to be found in paragraph 1 of Schedule 1A, and of course is the same as that which the noble Lord uses in the amendment.

The offence of obtaining credit in paragraph 16 is explicitly extended by paragraph 16(2) to include,

    "where goods are bailed (in Scotland, hired) ... or ... agreed to be sold"

under the two types of agreement specifically referred to; namely, hire purchase for goods being bailed and conditional sale agreements for goods agreed to be sold. As it is not generally apt to refer to bailment in the context of a conditional sale agreement, it is necessary to make separate reference to the circumstances in which the goods are agreed to be sold under this type of agreement in order that this provision will have the effect we intend. Moreover, goods supplied under a chattel leasing or retention of title agreement will not be caught by paragraph

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16(2)(a) for the same reason. The paragraph as drafted is beastly complicated but it is necessary to ensure that prosecution can be undertaken in appropriate circumstances.

Perhaps the noble Lord, Lord Sharman, will allow me, while I am still in the mode of hire-purchase agreements, to say something about his Amendment No. 23 which I know he has not yet moved but which concerns the same issue.

A company that has entered a moratorium may have goods that are subject to hire-purchase, conditional sale, chattel leasing or retention of title agreements. Under paragraph 19, during the moratorium the company is able to deal with these goods within the terms of the relevant agreements because the company is, of course, carrying on business as usual. Paragraph 19 also provides that a company may dispose of goods, which are the subject of such agreements, provided certain conditions are first satisfied.

If we agree to Amendment No. 23 it would mean that the company's ability to dispose of goods under conditional sale, chattel leasing or retention of title agreements would be restricted to the company's ability to dispose of them under the terms of the relevant agreements. This would be, in our view, unduly restrictive, as the company may need to dispose of such goods in order to raise funds or reduce overheads. It might be a perfectly proper business decision. However, the rights of the holder of security, or the owner, as the case may be, are protected by sub-paragraphs (4) and (6).

I hope that that anticipates the arguments that the noble Lord, Lord Sharman, was going to use about Amendment No. 23 and I hope that what I have said about Amendment No. 21 will persuade him that our view is correct.

Lord Sharman: I agree entirely with the noble Lord when he says that the drafting of this is difficult to understand but, having heard his explanation, I wish to reflect on it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.15 p.m.

Baroness Buscombe moved Amendment No. 22:

    Page 16, line 8, at end insert—

("(4) A disposal of the company's property to any person other than a person who is connected with the company shall not be avoided only on the ground that sub-paragraph (1)(a) was not satisfied, but any officer of the company who authorises or permitted the contravention, without reasonable excuse, is liable to indemnify the company for any loss or damage resulting from the disposal.").

The noble Baroness said: Paragraph 17 of the new Schedule A1 restricts a company from disposing of its property unless there are reasonable grounds for believing that the disposal would benefit the company and the disposal is approved by the moratorium committee or, where there is no such committee, by the nominee. It is not clear whether or not any such

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disposal is avoided if it should turn out that the grounds for believing that the disposal would benefit the company were not reasonable.

That must be clarified, we believe, because it is not acceptable for any disposal to someone who is not connected with the company to be avoided at a subsequent date. That would have a substantial effect on the price to be paid. Both the company and the purchaser would be prejudiced. The company would get a lower price for its property and the purchaser would obtain property which might subsequently be claimed back by the company. That would be particularly unacceptable for any purchaser because such a purchaser should not be put on enquiry as to the grounds for the belief that the disposal would benefit the company, particularly if approved by the moratorium committee or the nominee.

The point is that, as the Bill is currently drafted, when forming an agreement with a third party and entering into a contract with him where there has been a moratorium, the contract is going to be of dubious validity, unless there are reasonable grounds for believing that their disposal would benefit the company. What sort of a contractual restriction is that? Why should a third party be interested in or concerned with whether the transaction is going to be for the benefit of the company? We do not believe that this is realistic. Moreover, if there is a risk of the contract being avoided, why would a person enter into it in the first place? He would surely go elsewhere. I beg to move.

Lord McIntosh of Haringey: I apologise to the noble Baroness, Lady Buscombe, for having my attention distracted.

Baroness Buscombe: Would the noble Lord like me to repeat that?

5.15 p.m.

Lord McIntosh of Haringey: I hope the noble Baroness will forgive me on the basis that I am going to make a friendly response to the amendment. We recognise the concern that if disposal were made contrary to paragraph 17 of Schedule A1, they could be invalid and unenforceable. We have concluded that this is right. We see that it would be damaging to rescue attempts if third parties were reluctant to deal with a company which is in a moratorium because of doubts about whether the contract would be enforceable against the company. We agree that this issue must be addressed in the Bill. Unfortunately, the amendment does not fully achieve what is required.

The amendment also seeks to make officers liable to indemnify the company for any loss or damage they cause to it by permitting, or authorising, a disposal which is contrary to paragraph 17 of Schedule A1. Paragraph 38 of Schedule A1 provides that the court can make such order as it thinks fit when the actions of the directors are challenged. Such an order may require a director to indemnify the company where it

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had suffered a loss because he had caused the company to make a prohibited disposal. The Bill already deals with that particular point.

The amendment would still leave a third party needing to satisfy himself as to whether the proposed transaction is in the ordinary course of the company's business, and if not, whether the appropriate consent has been obtained from the nominee or committee under paragraph 17(1)(b). These difficulties may still make third parties wary of dealing with the company. In my view the proposed Amendment No. 22 would not fully deal with the issue which concerns us all regarding the effect of paragraph 17 on third parties. However, we will be bringing forward amendments as soon as we can—and I am not promising that it will be at Report stage—to make it clear that contracts entered into in breach of paragraph 17 will be enforceable by third parties against the company.

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