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The Bill was returned from the Commons with certain Commons amendments to which the Lords have disagreed not insisted on and with the Lords amendments disagreed to; the Commons reasons were ordered to be printed.
House adjourned at nineteen minutes past ten o'clock.
The Committee met at fifteen minutes to four of the clock.
[The Deputy Chairman of Committees (THE COUNTESS OF MAR) in the Chair.]
The Deputy Chairman of Committees (The Countess of Mar): Before the Minister moves that the first statutory instrument be considered, I remind noble Lords that, in the case of each instrument, the Motion before the Committee will be that the Committee do report that it has considered the instrument in question. I should perhaps also make it clear that the Committee is charged only to consider instruments, not to approve them or not approve them. The Motion to approve will be moved in the Chamber in the usual way.
The noble Lord said: These regulations, which we will introduce from April 2006, implement the main measures of a model law formulated by the United Nations Commission on International Trade LawUNCITRALin 1997. The model law is designed to assist countries to equip their insolvency laws with a modern, harmonised and fair framework to deal with insolvencies that cross international borders.
National insolvency laws are often not designed to cope with instances of cross-border insolvencies and the problems that may arise. That makes it difficult to deal with insolvencies quickly and effectively. Any conflict between national laws can lead to the loss of assets and of a potential opportunity to rescue a viable business. The Government are committed to the promotion of a rescue culture, and recognise that such uncertainties can be a barrier to trade and have a negative impact on the flow of investment between countries. The regulations will provide a legislative framework that will facilitate the global approach to the administration of cross-border insolvencies promoted by the UNCITRAL model law. For example, it would cover cases where a debtor had assets in more than one country or where the creditors were located in a different country from the one in which the insolvency proceedings were taking place.
In May 2002, the European Union adopted its own regulation on insolvency proceedings. There is an element of overlap between these regulations and the EC insolvency regulation. Although the latter covers only the co-ordination of insolvency proceedings within the EU, its underlying principles and approaches have been extremely influential in the international community outside Europe. However, although influential, the EC regulation does not
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provide a framework for dealing with cross-border insolvency matters which extend beyond the member states. When these regulations are introduced, they will provide a complementary regime of practical value on a wider international stage. That will place Great Britain, by virtue of the operation of Section 426 of the Insolvency Act 1986, in the unique position of having a suite of statutory procedures available to officeholders in cross-border insolvency cases.
In addition, implementation of the model law will provide encouragement to other countries that may be contemplating their own introduction of the legislation. In this way, insolvency officeholders in Great Britain will be able to enjoy the same benefits abroad as their international counterparts will enjoy here. That should reduce costs incurred in realising assets and increase funds available to creditors. I beg to move.
Lord De Mauley: I thank the Minister for his explanation of the regulations. Perhaps I should disclose an interest as having worked a long time ago in the insolvency department of what was then one of the big eight accounting firms. As my experience predates 1983, I cannot claim that it will colour my judgment on the regulations.
I understand that, in the past, there have not been many instances of cross-border insolvency proceedings involving UK entities. In the future, too, utilisation of the regulations is expected to be infrequent. One supposes that that may rise with globalisation. As the Minister says, the regulations will apply only to insolvency proceedings relating to non-EU states. We understand that the equivalent EC regulation will take precedence if there is a conflict between the two, already being in place.
We all hope that the effect of these regulations will be positive for Britain and British companies. They should facilitate the process of tracing assets overseas and contribute to reducing the cost of bringing insolvency proceedings in foreign countries. Parties may now be able to pursue claims where it would not previously have been worth while to do so. We hope that the rescue of businesses with assets in more than one jurisdiction will be rendered easier.
I should be grateful for the Minister's clarification on a couple of points. First, on the one hand, anyone from anywhere is now able to bring proceedings in UK courts under these regulations, even if they hail from a jurisdiction which has not implemented the model law; on the other hand, the right of UK entities to bring proceedings overseas will, we understand, be restricted to countries which have similarly signed up. Although I understand that there is already precedent under Section 426 of the Insolvency Act, to which the Minister referred, for such a non-reciprocal situation it would not appear to be particularly fair on our own businesses. What action is being taken to encourage
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other countries to adopt the model law? I hope that he will forgive me for pressing that question. He referred to the fact that the regulations themselves will encourage people but we are somewhat sceptical about whether that will be enough.
Secondly, we understand that, as a result of EC legislation currently under preparation, the regulations are not to be extended to credit institutions and insurance companies. That is a huge sector and one with a history of insolvenciesone might mention, for example, BCCI. Can the Minister give the Committee an indication of when that will be satisfactorily resolved?
Lord Maclennan of Rogart: We on these Benches associate ourselves with the general welcome that has been accorded to these regulations. It is satisfactory to see the UNCITRAL model law being extended, and no doubt that in itself will have some exemplary effect on other countries. I associate myself with the questions that have just been asked, and perhaps the Minister can give an indication of how many other countries have ratified or introduced these regulations in their own jurisdictions.
I confess to being a little unclearthat is my fault as I am not an expert in this fieldabout the precise interface between the EU regulation and the model law. I have one particular question for the Minister. Can a claimant from a European Union country shop between the jurisdiction and the remedies provided under this and the European regulation? Is there a choice? I gather that there is a considerable overlap and it may not be a particularly practical question; none the less, it would be of interest to see how it is intended to operate.
Lord McKenzie of Luton: I thank noble Lords for their comments on these draft regulations and I shall try to deal with the questions raised. The noble Lord, Lord De Mauley, asked about credit institutions and insurance undertakings, and perhaps I can deal with that first. As a result of our consultation process, we accept that there could be benefits in bringing these entities within the ambit of the regulations, given that they conduct business throughout the world. Following consultation with the Treasury, and in light of the extensive EC legislation regarding the winding-up and reorganisation of credit institutions and insurance companies, we have decided to exclude these bodies from the regulations for the time being. We will consider their inclusion as soon as it is practical and possible to do so. EU legislation relating to credit institutions and insurance companies is particularly complex and we want to ensure that we get it right. The intention is to include them at some stage but we are not in a position to do so yet.
An issue was raised about reciprocity and what we are doing to encourage others to introduce the legislation. As I said, and has been acknowledged in the discussion pad, we hope that introducing the model law itself will provide an example to other countries which will encourage them to implement the
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law. Obviously, we have the protection for non-friendly countries; if they seek to abuse the powers, Article 6 of the model law gives the right to refuse assistance on public policy grounds.
The noble Lord, Lord Maclennan, raised the question of how the provisions interact with EU regulations. In any case, when the EC regulation on insolvency proceedings applies, it prevails over these regulations, which means that these regulations can apply to the extent that the EC regulation does not or to the extent that the model law regulations do not conflict with the EC regulation, but there is not in that sense a choice of shopping between them.
The question of other countries that have adopted the provision was raised. It has been adopted by Japan, Mexico, Poland, South Africa, the British Virgin Islands and Montenegro. The USA, which is our largest trading partner, is within that initial group. Other major trading partners including Australia, India and New Zealand are actively considering adoption of the legislation. As the noble Lord, Lord De Mauley, said, the provisions may not have been needed much to date. However, given the global expansion of trade and investment, we think that there will be an increasing incidence of cross-border insolvency. That is why it is important to be seen to sign up to this. Unpredictability in the administration of cases of cross-border insolvency can become a disincentive to the flow of capital and cross-border investment, so we think that it is very much in our interests to proceed with the regulations.
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