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Criminal Justice (Mode of Trial) (No. 2) Bill

Brought from the Commons, read a first time; and to be printed.

Insolvency Bill [H.L.]

6.52 p.m.

Read a third time.

Clause 4 [Qualification or authorisation of nominees and supervisors]:

Baroness Buscombe moved Amendment No. 1:


The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 2, l5 to 18 and 21 to 30. When we moved these amendments both in Committee and on Report, the point that I made was a very simple one: if a company or debtor in financial difficulties consults an authorised person, that person may be tempted to recommend a moratorium or a voluntary arrangement because he will then be able to act as nominee or as supervisor in his role as an authorised person and so get paid as the nominee or the supervisor. If he does not recommend a moratorium or a voluntary arrangement, he will not be paid for the advice that he gives. In many cases the authorised person will be so tempted and will recommend an insolvency procedure that is inappropriate.

I believe that the Minister knows that I really have the bit between my teeth on this issue. We feel that it is important to try to get this point across on Third Reading. We are also concerned about the suggestion

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that there is some kind of hidden agenda behind our opposition. I have never said that there was a hidden agenda.

In the Minister's response to what I said on Report he said that he would write to me to make it plain that nominees and supervisors would be able to act in relation to voluntary arrangements generally and not just in moratorium cases. I am grateful for that correspondence but, with great respect, I never understood otherwise. The noble Lord then went on to say that it would be strange to suggest that the Secretary of State would regard Clause 4 as a measure of dumbing down on standards. Perhaps I may point out that I do not suggest that the Secretary of State would regard Clause 4 as a means of dumbing down on standards.

The Minister also said that the proposition that only a licensed insolvency practitioner will ever have the skills necessary to act as a nominee or supervisor was untenable. Again, I do not make that proposition. The noble Lord went on to say that there were areas of a supervisor's role, such as collecting in regular payments and distributing them in accordance with the terms of an agreed voluntary arrangement, where it would be absurd to claim that the particular skills of an insolvency practitioner are always needed. Again, with respect, I do not--and did not--make that claim.

We believe that any authorised person should be licensed to be an office holder in bankruptcies, administrations and liquidations. If he is not so licensed and if he is asked for advice as to which insolvency procedure is appropriate, he will be less likely to recommend bankruptcy, administration or liquidation. Because an authorised person will only be authorised to act as a nominee or supervisor, he is more likely to recommend a moratorium or a voluntary arrangement. If he recommends the former, he will not be remunerated. If he recommends the latter, he will be remunerated. Human nature is such that he will find it difficult to resist the recommendation that leads to remuneration rather than no remuneration.

To suggest that Clause 4 will not give rise to that danger is unrealistic. It happens now with licensed insolvency practitioners where some of them recommend insolvency procedures where they are more likely to be appointed and remain as the office holder than others. Further, as the Minister said on Report, there have been accusations, which have been made known to the insolvency service, that if insolvency practitioners provide advice as authorised persons they are more likely to recommend insolvency procedures through which they can make money. With respect, the Minister cannot ignore us; nor can he ignore those accusations. There is no doubt that, as currently drafted, the Bill introduces an element that might give rise to the danger feared by those of us who have made those accusations known to the insolvency service.

The Minister also mentioned previously that those who seek the advice of authorised persons must take into account the possibility that those who are advising

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them might receive fees through one course of action rather than through another course of action. The noble Lord said that he was sure they would do so. I accept that some of them may take that into account. However, many of them will not; and it is they whom we seek to protect. The directors of an insolvent company and an insolvent debtor are very susceptible to any advice that may save them from their financial difficulties. They will clutch at straws. Indeed, I suggest that many of them will be desperate. We should do all that we can to protect them. I beg to move.

Lord McIntosh of Haringey: My Lords, as always, I listened carefully to what the noble Baroness, Lady Buscombe, said. However, I am as perplexed as ever. I entirely accept what she said about the various points where she believes I accused her of saying something that was not her intention. Indeed, I accept everything she said about her intentions.

The noble Baroness is now speaking to a quite limited point; namely, the relationship between an authorised person and the person who might ultimately be a nominee or supervisor. However, her amendments do not do that; indeed, they go much further. Like the previous amendments, the current amendments would take the stuffing out of Clause 4, which allows the Secretary of State, under certain very restricted circumstances that I shall spell out, to recognise a body that could provide nominees and supervisors.

What the noble Baroness, Lady Buscombe, is saying--she has said it before--is that because a person authorised via the new Section 389A of the Insolvency Act will be authorised only to act as a nominee and supervisor, he will inevitably be tempted only to recommend a voluntary arrangement of the kind that he might make money from as a nominee or supervisor. Of course, all of that is speculation.

The noble Baroness, Lady Buscombe, referred to the charge which has been made that when advice is given by insolvency practitioners to a company in difficulties, they might be tempted to recommend a course of action from which they could make money as insolvency practitioners. A serious charge of that kind needs to be examined on a case by case basis. We have to determine whether that happens; otherwise it is mere speculation. I suggest that the charge that authorised persons who are qualified to become nominees and supervisors might be tempted to recommend a voluntary arrangement also constitutes speculation and needs to be tested.

The amendments ignore the realities of the situation. Under new Section 389A the Secretary of State will be able to recognise a body to authorise its members to act as nominees or supervisors in relation to voluntary arrangements. But he will only be able to do so if the body maintains and enforces--I emphasise the words "maintains and enforces"--rules for securing that its members are fit and proper persons to act as nominees or supervisors and meet acceptable requirements as to education and practical training and experience. That means that if an individual did

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not continue to maintain those standards--I can imagine that an accusation that he had used his position as an authorised person to put business his way would be a serious accusation and a serious departure from those standards--he should be dealt with appropriately by the body we are discussing. I assure noble Lords that nothing of importance would be lost by the absence of the word "professional" from what will be the new section.

The power as drafted makes clear that the Secretary of State will recognise only bodies which have in place all that is needed to ensure that their members are up to the mark. Those authorised will also have to have in force security, or in Scotland, caution, for the proper performance of their functions which meets the prescribed requirements. For instance, we need to provide that the surety or cautioner will be jointly and severally liable with the nominee or supervisor for losses caused by the fraud or dishonesty of the office holder. So a body looking to apply for recognition will have to ensure that its regime for regulating its members is sufficiently rigorous to ensure that the high standards currently expected of nominees and supervisors can continue to be met. Why on earth would the Secretary of State want standards to fall? However, I acknowledge that the noble Baroness, Lady Buscombe, has not said that she thinks they will fall. The regime may be different from that applied to insolvency practitioners because of the limited authorisation but it will have to be rigorous and effective. If not, the body's recognition will be withdrawn.

I return to the assertion that prospective nominees will be tempted to recommend a voluntary arrangement when it is not appropriate. On a practical level, we cannot see how it would be good for business continually to recommend procedures that did not work. But the assertion ignores the fact that the authorising body will be monitoring its members. Those are the conditions laid down in Clause 4. The kind of conduct about which the noble Baroness, Lady Buscombe, speculates would almost certainly lead to a revocation of authorisation.

This is not a Bill about authorised persons; this is a Bill about a moratorium and about nominees and supervisors. The amendments would delete from the Bill the provision that there could be an alternative organisation with very rigorous standards to which nominees and supervisors might belong. Unless the noble Baroness, Lady Buscombe, can convince the House that an authorised person would be more likely--being a member of such an organisation--to recommend something to his advantage than is now the case, I do not think that the amendments have any substance.

7 p.m.

Baroness Buscombe: My Lords, I thank the Minister for his response. I am sorry that he has not moved, as it were, on the point about which we feel strongly. We accept that there is no question of wanting standards to fall, as the Minister confirmed today. However, the Minister said that the Bill is not about authorised

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persons. He also said that it was speculation to suggest that individuals would use their position to obtain business. However, we suggest that it is human nature for individuals to recommend a course of action which will benefit them. We are talking about their livelihood after all. As the Bill is drafted, an authorised person is limited by the licence in terms of what he can do. Therefore, it would be common sense for him to follow a course of action for which he can be remunerated as a nominee or supervisor. I shall read carefully in Hansard what the Minister said. I am sorry that he will not move on this point. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 2 not moved.]

Schedule 1 [Moratorium where directors propose voluntary arrangement]:


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