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The noble Lord said: Paragraph 22 of the new Schedule A1 imposes an obligation on the nominee to monitor the company's affairs during the moratorium. He has to believe that the proposed voluntary arrangement has a reasonable prospect of being approved or implemented; and that the company will have sufficient funds available to it during the remainder of the moratorium to enable it to carry on business. If he does not hold that opinion he must withdraw his consent to act in accordance with paragraph 23.
In our view, during the course of the moratorium a nominee should be under a duty to verify the information submitted to him by the directors from independent sources. When a company's financial affairs are so parlous that a moratorium is appropriate the directors are often desperate enough, no doubt frequently innocently, to mislead a nominee. We believe it is unreasonable for a nominee to rely upon the judgment of directors during the course of a moratorium; although at the beginning of the process there appears to be no alternative to this course.
However, the Bill does address the concerns which lie behind this amendment. First, we have provided, under paragraph 23(2)(c) of Schedule A1, that the nominee must withdraw his consent to act and so end the moratorium if the directors do not supply the necessary information required of them under paragraph 22. Also, supplying incorrect information would mean that the directors have not complied with that obligation and on becoming aware of that fact the nominee would have to withdraw in that instance too.
Secondly, depending on the circumstances, a director may also have committed an offence contrary to paragraph 40 of the schedule if he fails to provide the nominee with the requisite information or submits incorrect information. We consider that that should discourage any misconduct in this area by rogue directors who hope to prevent a nominee from ending a moratorium by providing misleading information.
We therefore consider it essential that paragraph 22(3) of Schedule A1 is retained, rather than removed as proposed by the amendment. We also consider that adequate safeguards are in place to deal with the concerns which have led to this amendment.
Lord Kingsland: I thank the Minister for his reply. I am partially reassured by what he has said and will look again at the amendment to see whether or not there is another way to put the point. Meanwhile, I beg leave to withdraw it.
All of these amendments deal with the situation in which the nominee ceases to act or may be required to cease to act. Amendment No. 26 changes the obligation on the nominee from a mandatory obligation to an optional one. Given that the purpose is to create a relatively short moratorium, which shouldas the Minister has already saidbe flexible, it would be beneficial to give the nominee, who after all would be someone experienced in these matters, the flexibility, rather than the obligation to withdraw in those circumstances.
Amendment No 29 deals with the circumstances in which a nominee may wish to withdraw his consent to act, which fall outside the terms as set out currently in paragraph 23. Paragraph 23 provides for very specific circumstances in which a nominee may withdraw his or her consent to act. It would be good to have an all-encompassing provision, where the nominee could apply to the court for reasons based on circumstances that fall outside those relatively narrow definitions. Amendment No. 29 seeks to do just that.
Finally, Amendment No. 34 extends the remit in paragraph 26 of Schedule 1 to allow, by the application of a creditor, for the replacement of a nominee who has failed to carry out any of his or her duties. I will return to the issue of the fundamental duty of the nominee later in our discussions. However, on Second Reading I made the point that I was concerned that there needed to be an understanding of where the duty of the nominee fundamentally lies. Is it a care to the creditors, to the court, to the company, or to the directors? I believe it is necessary that the creditors should have the right to apply for the removal of a nominee who has failed to comply with the duties imposed on him in this Schedule. I beg to move.
Lord McIntosh of Haringey: I shall deal with each of these amendments in turn. To accept Amendment No. 26 would give the nominee discretion to withdraw his consent to act, rather than being obliged to do so.
If it becomes clear that the voluntary arrangement is unlikely to be approved and implemented, the moratorium should be brought to an end. If no rescue is in prospect we consider that the company should not have the protection afforded by a moratorium and so the nominee must withdraw his consent to act.
Similarly, we consider that the nominee should have no option but to withdraw his consent to act if he becomes aware that when the company filed for a moratorium it was ineligible to do so. A company should not have the continuing benefit of a moratorium if it was not entitled to the moratorium in the first place.
Similarly, again, if the directors do not provide the information the nominee requests, so that he can monitor the company's affairs during the moratorium, we consider he must also be required to withdraw his consent to act. Monitoring is an important safeguard in the moratorium period. If the nominee cannot monitor the company's affairs as he thinks fit the company should not continue to have the benefit of the moratorium.
Amendment No. 27 would require that the nominee must only withdraw his consent if he forms the reasonable opinion that, first, the proposed voluntary arrangement no longer has a reasonable prospect of being approved or implemented or, secondly, the company will not have sufficient funds available to it during the moratorium to enable it to continue in business.
We agree that where the nominee does form an opinion under paragraph 23(2) it should be reasonably held. However, inserting the additional requirement that his opinion should be reasonable is not necessary in this paragraph. If the nominee acts unreasonably then his decision can be challenged by an application to the court under paragraph 24. It follows therefore that, where challenged, if a nominee withdrew his consent to act under paragraph 23 on the basis of an unreasonable opinion the court can make an appropriate order which would provide the remedy which I think the noble Lord, Lord Sharman, is seeking.
It seemed to be suggested that there is a conflict of roles for the nominee during a moratoriumthat of an independent office holder with a duty to the general body of creditors and that of a professional adviser with a duty of care to his client. We do not see any conflict of role for the nominee. His role is set out in the Bill and that role determines his duties and responsibilities. He has functions to fulfil under Schedule A1. For example, before a company can obtain a moratorium he is required to express his opinion on various matters. He will either consider that he can make the required statement set out in paragraph 6, or not. In certain instances he is required to give notice to various individuals and in other instances he is required to approve certain transactions which the company may only enter into if they satisfy certain requirements. He will either be content that they satisfy those requirements, or he will not. He has to monitor the company's affairs so that, if the circumstances require, he will withdraw his consent to act and bring the moratorium to an end.
Turning to Amendment No. 29, this amendment seeks to give the nominee an ability to withdraw his consent to actthus bringing the moratorium to an endby way of obtaining leave from the court. But the Bill already provides enough flexibility to enable him to withdraw his consent where appropriate. We have provided that he must withdraw his consent to act at any time during a moratorium, if he forms the opinion, which I have already set out in my response to the earlier amendment, that the voluntary arrangement, as proposed or with modifications no longer has a reasonable prospect of being approved or implemented, or that the company will not have sufficient funds available to it to enable it to continue to carry on its business during the remainder of the moratorium.
He must also withdraw his consent to act if he becomes aware that when the company filed for a moratorium it was ineligible to do so, or if the directors fail to provide him with the necessary information.
One or other of these grounds would provide for the nominee to withdraw his consent in any appropriate circumstances and that would bring the moratorium to an end. These are decisions for the nominee and not for the court and we would not wish to provide further that the nominee could withdraw his consent to act with the leave of the court. I believe case law shows that if a nominee went along to the court in those circumstances the court would be likely to say "It is nothing to do with us, go back and do your job". Under those circumstances, I ask the noble Lord, Lord Sharman, not to press this amendment.
On Amendment No. 34, in our view it would be inappropriate to extend the scope of paragraph 26 to allow creditors to apply to the court to replace a nominee. A creditor who is not satisfied with the conduct of a nominee can already apply to the court under paragraph 24 and the court can make any order it thinks fit to deal with the situation complained of.
Alternatively, the replacement of the existing nominee by another nominee could be made a condition of any extension of the moratorium under paragraph 31, or approval of a voluntary arrangement under paragraph 29. We think nothing further is needed.
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