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Lord Kingsland moved Amendment No. 40:


The noble Lord said: I rise to move Amendment No. 40 and in doing so will speak to Amendment No. 70. Paragraph 34 of the New Schedule A1 provides that the decision of the creditors' meeting is to prevail in any decision of the company meeting. It also gives the right to a member of the company to apply to the court to rule that the decision of the company meeting has effect instead of the decision of the creditors' meeting. There appears to be no time limit for a member to make that application.

Since these decisions are fundamental to the whole scheme of the moratorium, it is, in our view, desirable that there be a short time limit for a member to apply to the court. We believe this time limit should be seven days. The New Section 4A of the 1986 Act inserted by paragraph 5 of Schedule 2 should be consistent with this proposed amendment. I beg to move.

Lord McIntosh of Haringey: I understand the concern of the Opposition that the supervisor may be

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afraid to start to implement the voluntary arrangement because a member of the company may apply to the court in instances where the decision of the creditors and company meetings are at variance. However, supervisors should not be hesitant about implementing voluntary arrangements in these circumstances.

Paragraph 34 of Schedule A1 and paragraph 5 of Schedule 2 both make it clear that if the decisions of the two meetings are at variance, the decision of the creditors' meeting is the one that has effect. So those concerned may rely on that decision and act accordingly. That would continue to be the case until such time as the court ordered otherwise. For that reason the timing of any application by a member of a company is not critical for the nominee or supervisor, so we do not see any reason to restrict the time period in which a member of a company can make such an application, particularly as we have given the court adequate powers under paragraph 34(5) to deal with the situation where it sees merit in an application by a member. Indeed, a member may well need considerably more than seven days to consider his position.

However, if a member was concerned that prompt implementation of a voluntary agreement, as approved by the creditors and rejected by the members, was damaging to his circumstances, he would need to make an early application to the court in order to protect his interests. He would do that promptly because it is in his interest to do so, irrespective of any time limit.

In addition, the amendments do not work on their own terms. They require an application to be made to the court within seven days of the decision of the creditors' meeting which is at variance with that taken by the meeting of the company. But the company meeting which takes that decision may take place, say, 10 days after the decision taken by the creditors' meeting. Where that happens the time limit for making an application to the court will have expired before it is known that the two decisions are at variance.

Lord Kingsland: I am perfectly happy to accept that amendment to my amendment. The point I am making is that we need a clear rule. I shall return to this matter at Report and meanwhile beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Kingsland moved Amendment No. 41:


    Page 22, leave out line 36 and insert—


("(ii) could have been so entitled (but was not present or represented at it) but did not have notice of it,").

The noble Lord said: In moving this amendment I shall also speak to Amendments Nos. 45, 46, 71, 75, 76, 89 and 93.

Paragraph 35 of the new Schedule A1 deals with the effect of the approval of a voluntary arrangement. Sub-paragraph (2) provides that a voluntary arrangement binds those who are entitled to vote at a creditors' meeting and those who would have been so

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entitled if they had had notice of it. However, a creditor would still be entitled to vote at a creditors' meeting even if he had not had notice of it. Sub-paragraph (2)(b)(ii) has no effect because no creditor would have been entitled to vote if he had had notice of the creditors' meeting. Notice is irrelevant for the purposes of entitlement to vote. I beg to move.

Lord McIntosh of Haringey: These amendments certainly address real issues, which we do recognise. Firstly, they replace the word "would" with "could" and secondly replace "if he had had" with "but did not have".

If these amendments were to be accepted we consider that, in relation to the first issue, on occasion they may have the unfortunate consequence of the "unknown creditor"—that is, the one who had not had notice of the meeting to consider the voluntary arrangement proposal—being bound by that arrangement when he should not be. We only want a voluntary arrangement to bind those who would have been entitled to vote at a meeting if they had had notice of it. We do not want a creditor who could have been entitled to vote to be bound by a voluntary arrangement in the event that they would not have been so entitled at the meeting once the votes had been determined.

What we do intend to do—and I hope this will reassure the noble Lord—is to make provision in the Insolvency Rules to define in which circumstances an unknown creditor would have been entitled to vote at the creditors' meeting if he had had notice of it. This will make it possible to say with certainty whether a creditor would have been entitled to vote and therefore whether he is bound by the arrangement. I think the Red Queen would have one or two things to say about this issue.

With regard to the amendments which address the second issue, these may be consequential on those which address the first, but we do not see that they would change the substance of relevant paragraphs in any way. The amendments only restate the contents of those paragraphs in different terms. We are satisfied that the meaning of those paragraphs is perfectly clear.

As the case may be, they either provide that a voluntary arrangement binds every person who in accordance with the rules would have been entitled to vote at the meeting to consider a voluntary arrangement proposal if he had received notice of it; or provide that such a person may apply to the court to challenge the decisions taken at those meetings.

The noble Lord, Lord Kingsland, said that notice is not relevant as to the entitlement to vote, but Rule 1.17 of the Insolvency Rules says:


    "Subject as follows: every creditor who was given notice of the creditors' meeting is entitled to vote at that meeting".

I realise that this is a complicated issue but it is certainly our intention to meet the objectives of these amendments with provision in the Insolvency Rules.

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Again, perhaps it might be helpful if I could expand on that by writing to the noble Lord, Lord Kingsland, and others who have taken part in these debates.

Lord Kingsland: This is the first occasion this afternoon, when the noble Lord the Minister had given me some grounds for hope. I am much obliged to the Minister for his reply, which I shall read with the utmost care. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Sharman moved Amendment No. 42:


    Page 22, line 37, at end insert—


("(2A) Nothing in sub-paragraph (2) shall affect the rights of any creditor to bring legal proceedings against the company and to obtain judgement against the company in the full amount of its debt for the sole purpose of making a claim against an insurer by virtue of the Third Parties (Rights Against Insurers) Act 1930.").

The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 72 and 90. All three of these amendments concern the position of creditors who may have rights under the Third Parties (Rights Against Insurers) Act 1930.

As we have just discussed, paragraph 35 binds creditors into the terms of a voluntary arrangement. However, that could have the effect of prejudicing their position against a third party insurer. Such creditors should not be bound by those arrangements if it prejudices those rights to recover their claim from the insolvency insurer. In the case of Sea Voyager Maritime Inc and others v Bielecki, the court held that a creditor who was bound by an arrangement was unfairly prejudiced because the compromise of his debt prevented him from proceeding against the insurer. This problem would be exacerbated by the proposed new provisions unless we made a specific exemption for creditors who have such claims.

The amendments to the three pieces of the Bill provide just that. They provide statutory protection solely for the purpose of enabling the creditor to proceed against an insurer. I beg to move.

Lord McIntosh of Haringey: Again, I think I can reassure the noble Lord, Lord Sharman, on this point. I understand the concern that the noble Lord has expressed and I sympathise with it, but we do not consider the amendments are necessary. We take the view, and there is case law which supports it, that creditors who are able to make a claim under the Third Parties (Rights Against Insurers) Act 1930 and who find themselves bound by a voluntary arrangement should be able to seek relief from the court on the grounds of unfair prejudice under either paragraph 36 of Schedule A1 of the Bill, or Sections 6 or 262 of the Insolvency Act 1986 as appropriate.

It was decided in the case of Sea Voyager Maritime Inc and others v Bielecki that a person who is bound by a voluntary arrangement is prejudiced as a creditor by the terms of the arrangement if that person is not able, or at the very least, may not be able, to proceed to judgment for the full amount of any claim that it may

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have against the debtor and thus cannot, or may not be able to, recover in respect of that claim against the insurer under the 1930 Act. The application for relief in that case was made under Section 262 of the Insolvency Act 1986, because it relates to individual voluntary arrangements. That section is reproduced in paragraph 36 of Section A1 and Clause 6 of this Bill, and Section 6 of the Act.

Thus, a person who suffers unfair prejudice because their rights under the 1930 Act have been impaired may apply to and should be granted relief by the court under either paragraph 36 of Schedule A1 to the Bill, or Sections 6 or 262 of the Act as appropriate.


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