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Lord Sharman: I am very grateful to the Minister for his response and much encouraged by it. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 43:


The noble Lord said: With this amendment I speak also to Amendments Nos. 44, 73, 74, 91 and 92. These amendments relate to the company voluntary arrangement procedure, with or without a moratorium, and to the individual voluntary arrangement procedure, with or without an interim order, respectively. They are taken together as they address an identical point.

Paragraph 35 of Schedule A1, paragraph 6 of Schedule 2, and paragraph 9 of Schedule 3 all provide for "unknown creditors"—that is, those creditors bound by a voluntary arrangement even though they did not receive notice of the meeting to consider the proposal—to receive any "dividend" to which they would have been entitled. But the word "dividend" carries the connotation that it is a sum calculated at a rate of so many pence in the pound. However, a voluntary arrangement can provide for different creditors to receive varying amounts which might be calculated in different ways. For example, it could provide that each creditor should receive a specific sum, say £1,000, irrespective of the amount of individual claims, or, say, 10 per cent. in the pound on the amount of his claim; or perhaps a sum calculated by way of reference to the sum paid to a class of known creditors. We do not intend to fetter those proposing voluntary arrangements in such a way that proposals can only provide for the position of unknown creditors to be addressed in only one way, so the amendments will replace "dividend" with "amount" to achieve that result. I beg to move.

On Question, amendment agreed to.

6.30 p.m.

Lord McIntosh of Haringey moved Amendment No. 44:


    Page 22, line 43, leave out from ("person") to end of line 44 and insert ("the amount payable under the arrangement").

On Question, amendment agreed to.

15 Jun 2000 : Column CWH45

[Amendments Nos. 45 and 46 not moved.]

Lord Kingsland moved Amendment No. 47:


    Page 24, line 1, after ("and") insert ("may").

The noble Lord said: I speak to Amendments Nos. 47 and 48, extremely tersely. In paragraph 36(5) of new Schedule A1, the reference to paragraph 30 should be a reference to paragraph 34. We also think it would be appropriate for the court to have a discretion as to whether or not it revokes and suspends any decision as proving the voluntary arrangement which has effect on paragraph 34. I beg to move.

Lord McIntosh of Haringey: Paragraph 36(5) largely replicates Section 6(5) of the Insolvency Act 1986, which deals with company voluntary arrangements.

In both cases the effect of the provision is that, where the court is satisfied that a revised proposal will not be submitted for consideration by the meetings which the court has directed to be held, it is required to revoke the direction and revoke or suspend any decision approving the voluntary arrangement which has taken effect.

If this amendment were to be agreed to, an inconsistency would be introduced between the procedure leading to a company voluntary arrangement which is preceded by a moratorium and one which is not. That is to say that where the arrangement is preceded by a moratorium the court may revoke or suspend any decision approving the voluntary arrangement. But where there is no moratorium the court must revoke or suspend the decision. This inconsistency would not be appropriate. It is our intention to insert a moratorium into the existing company voluntary arrangement procedure—that is what this Bill is about—and the existing procedure should only be modified where the existence of the moratorium requires it, which is not the case here.

Some people might suggest that it is Section 6(5)—that is, the original scheme—which is wrong and that the court should be able to exercise its discretion in these circumstances in relation to both Section 6(5) and paragraph 36(5). However, that would be inappropriate as well. The challenges we are concerned with here arise from situations where the court has accepted that some form of unfair prejudice or material irregularity has taken place and where the court has directed that further meetings be held but is satisfied that the directors do not intend to submit a revised proposal. In such circumstances, it is clearly appropriate that the court should either suspend the decision approving the voluntary arrangement or revoke it, thus giving relief from the effects of the unfair prejudice or the material irregularity concerned.

Lord Kingsland: I must confess that the noble Minister's remarks will lead me to think again about these amendments and in those circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

15 Jun 2000 : Column CWH46

Lord Kingsland moved Amendment No. 48:


    Page 24, line 3, leave out ("30") and insert ("34").

The noble Lord said: I beg to move.

Lord McIntosh of Haringey: I did not realise that the noble Lord, Lord Kingsland, had spoken to Amendment No. 48. He is quite right about Amendment No. 48. Paragraph 36(5)of Schedule Al to the Bill refers to the decision approving a company voluntary arrangement following a moratorium under paragraph 30 of that Schedule, but in fact such decisions have effect under paragraph 34 of that Schedule, not paragraph 30. I am pleased to accept the amendment.

On Question, amendment agreed to.

[Amendment No. 49 not moved].

Lord McIntosh of Haringey moved Amendment No. 50:


    Page 25, line 10, leave out ("by petition").

The noble Lord said: There is no need for the application—which creditors or members of a company can make under paragraph 38 of Schedule A1 to the Bill—to challenge the acts or omissions of the company's directors during the moratorium to be made "by petition". It is more appropriate—and more consonant with modern practice—for such applications to be made in accordance with the system in Part 7 of the Insolvency Rules 1986, which set out how court applications are made in insolvency cases. This amendment removes the words "by petition" from paragraph 38(2). I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendment No. 51:


    Page 25, line 35, at end insert—


("( ) In making an order under this paragraph the court shall have regard to the need to safeguard the interests of persons who have dealt with the company in good faith and for value.
( ) In relation to any time when an administration order is in force in relation to the company, or the company is being wound up, in pursuance of a petition presented before the moratorium came into force, no application for an order under this paragraph may be made by a creditor or member of the company; but such an application may be made instead by the administrator or (as the case may be) liquidator.").

The noble Lord said: Paragraph 38 of Schedule A1 enables any creditor or shareholder of the company to challenge the acts or omissions of the directors of the company during the moratorium. They can do this either during the moratorium or after it has come to an end. When dealing with such an application the court can make such order as it thinks fit for giving relief in respect of the matters complained of. It could, for instance, order a transaction to be reversed or compensation to be paid by whoever the court decided.

On Second Reading it was suggested that third parties might be discouraged from dealing with a company during a moratorium period because of fears that the transaction in which they were involved might later be overturned by the courts. It is probably

15 Jun 2000 : Column CWH47

unlikely that a court would upset a transaction to the detriment of a third party who dealt with the company in good faith and for value. However, we recognise that a fear of that possibility could act as a real disincentive for people to deal with a company during a moratorium, so we have brought forward this amendment, first, to make it clear that when a court is considering giving relief in respect of a complaint under paragraph 38, it must safeguard the interest of persons who have dealt with the company in good faith and for value.

The second part of the amendment addresses the position under paragraph 38 when an administration order or winding-up order is made against the company on a petition which had been presented to the court before the moratorium was obtained. This situation necessarily implies that no voluntary arrangement has resulted.

Both administration and liquidation are collective insolvency procedures; that is, they operate so as to affect the interests of all the insolvent's creditors who are then dealt with in accordance with the statutory schemes in the Insolvency Act. It is therefore appropriate that when one of those procedures is invoked on a petition which was presented before a moratorium was obtained, but was then stayed by it, the right to make an application under paragraph 38 should be exercisable by the administrator or liquidator rather than by individual creditors or shareholders, otherwise there would be an unacceptable conflict.

The amendment also removes the right of creditors and shareholders to take individual action under paragraph 38 in these circumstances and gives it instead to the liquidator or administrator. I beg to move.

On Question, amendment agreed to.


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