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Lord McIntosh of Haringey: I can confirm that we will consider the point raised by this amendment when we come to revise the insolvency rules, with a view to giving effect to the Bill. The provisions currently determining who is able to attend and vote at meetings is dealt with in the insolvency rules. One moment, I may have gone too far? OrI can go further! We intend that secure creditors will be able to vote in full on the extension of the moratorium.
Subsections (3) and (4) of Clause 4 create a new type of insolvency practitioner who can act as a nominee or supervisor of a voluntary arrangement. Subsection (4) envisages such a person being authorised by a body recognised by the Secretary of State satisfying certain security requirements and not being ineligible on certain, specified grounds. These persons need not be insolvency practitioners.
As we said at Second Reading, that is worrying because it is inherently likely that an authorised person will be someone who has not made it as an insolvency practitioner and who has therefore become an authorised person instead. There would be no need for him to be an authorised person if he were already an insolvency practitioner. The result would be that an authorised person could in practice be less able than an insolvency practitioner.
This is particularly dangerous because of the new procedure for a moratorium, which cuts out the role of the court. Under existing law, a company can obtain a moratorium if it petitions the court for an administration order. The petition is usually heard within five days. The court can then continue the moratorium by making an administration order. An individual can obtain a moratorium if an interim order is granted by the court. The court is, therefore, closely involved at a very early stage. This is an important safeguard, since a moratorium imposes extreme restrictions on creditors, so the courts police these moratoria carefully.
The Bill as currently drafted will get rid of this important safeguard. A company or individual will be able to obtain a moratorium without any involvement by a court. To allow mere authorised persons, who may not be insolvency practitioners, to be the only real safeguard is unacceptable.
In discussions with the Minister, following Second Reading, he made quite clear that the Government see no reason for standards to drop. However, I believe we should reflect upon the fact that, thanks to the Insolvency Act 1986, standards for insolvency practitioners have risen. We see the introduction of this new animal, this new style authorised person if you like, as a dumbing down of those standards. At the moment to be an insolvency practitioner and have a licence one must pass exams and have experience, and one is regularly policed by the joint monetary unit inspectors, with the threat always hanging over one of disciplinary tribunals and fines.
It is our belief that a further important point must also be taken into account with regard to these amendments. These authorised persons will only be able to handle a voluntary arrangement. It is our belief that they will inevitably recommend a voluntary arrangement, because otherwise if they recommend, for example, a bankruptcy in practice they will not be able to act and so they will not receive a fee.
Perhaps I may offer an example. Take someone who is in considerable debt and has no assets. He goes to a "new style" insolvency practitioner, an authorised person, who then will draft a voluntary arrangement proposal. He is bound to get it through the practice. Creditors would be paid, say 10 pence in the pound over the next five years. The fees of the insolvency practitioner for this would be, for example, £5,000. If the individual went bankrupt he would be much better off, but then, of course, the authorised person would not receive his fee.
As we speak, bankruptcy registrars who police the situation are trying to stop this practice. If we have individuals who are only licensed to handle a voluntary arrangement then this is bound to happen. I beg to move.
Lord Sharman: I should like to speak to Amendments No. 98 and 99 which stand in my name and are grouped with this amendment. I agree with the noble Baroness about the enabling aspects of this legislation. I am sure that the Minister will tell us that enabling provisions are contained in this Bill, and that we should wait and see.
There are two conflicts here. First, it is my judgment that the process by which a moratorium may be selected will inevitably be dominated by insolvency practitioners. I cannot envisage circumstances in which the directors of a company, with the duty of care they have to their shareholders and the provisions for failing or becoming insolvent, would think it sensible to take advice from anybody other than a practitioner in insolvency. It may be difficult to see this group of persons, whomever they may be, emerging. Nevertheless, if it is desirable that this enabling provision be included in the Bill then the body so recognised must have proper ethical standards, proper training and so on.
Amendments Nos. 98 and 99 seek to add the words "regulated professional" to the clause so that we are talking about "regulated professional bodies". That would require that any body falling into that category
The Earl of Sandwich: I hope that I may speak to Amendments Nos. 96 and 97, although we are straying into Clause 4. I have some sympathy with the remarks made by the noble Baroness, although this is not a subject on which I have had any expertise, or even familiarity, up to now, except in the context of Third World insolvency, in which the Minister also has a special responsibility. By chance I have been in conversation with a friend who is an insolvency practitioner who has privately expressed concerns about this Bill to me. I decided they were important enough to bring them before the Committee. I know from reading the documents that all noble Lords are aware of these in general, but I will not repeat them in detail since they were aired at Second Reading. As we have heard, they enabled the Secretary of State to recognise bodies and to authorise persons to act as nominees or supervisors not otherwise authorised to act.
I know enough about the professional status of other professions to be genuinely surprised by this clause, which appears to threaten the integrity of a highly respected profession in which much public confidence is vested. We have seen, for example, that the proposed nominees, albeit on a temporary basis, would not just be acting as practitioners but be defined as such, although evidently not qualified to make judgments on other kinds of insolvency procedure. This is where I support the noble Baroness, Lady Buscombe, and I understand that it lies at the heart of concerns among the practitioners as well as their professional body, the Association of Business Recovery Professionals. They argue that there is a clear risk that these acting practitioners will tend to recommend the voluntary arrangements where another process might be more appropriate. This could alter the whole direction of an insolvency procedure.
I know the Minister sought to answer this point during the Second Reading debate. He suggested (at col. 1271 of the Official Report of 4th April 2000) that the ABRP has already allowed some of its members to qualify through business rescue experience, but he will know that such company reconstruction work is carried out outside the formal procedures whereas in this case we are talking about formally appointed practitioners.
The Minister admitted that he did not know how this new role would work out and that the Government were in no hurry to implement the measure; so why is it necessary? Are there not enough fully qualified professionals? Will this clause not give the public and the profession a sense of unease and uncertainty about the value and status of the insolvency practitioners and even about their credibility.
I understand the profession as a whole supports the general direction of the Bill, but this clause causes professionals, such as my friend, much concern and I would like to pass the Minister's comments and assurances to him.
I am also interested to know whether the Minister has considered the question of a name for the new type of practitioner should this clause remain in the Bill as there is likely to be much confusion about it.
Lord McIntosh of Haringey: I am glad to have had the opportunity to listen to this useful debate. At present, only licensed insolvency practitioners may act as nominees and supervisors of voluntary arrangements. I have no hesitation in acknowledging that their skills, education, training and experience make them particularly suited for this and I have no doubt they will continue to undertake these roles.
However, that is not to say that there is, or could be, no other body whose members might also be capable of acting as nominees or supervisors or that such a body might not emerge in the future. That is particularly true in relation to the new moratorium.
We are not alone in recognising that. The insolvency practitioners have already recognised that people other themselves might have relevant skills. The trade association, formally the Society of Practitioners of Insolvency, is now called the Association of Business Recovery Professionals. Membership of that body is open to others with expertise in financial rescues. Those skills may prove very useful in achieving rescues by way of voluntary arrangements. If a body exists or is formed whose members are capable of acting as nominees and supervisors we see no good reason why its members should be prevented from playing a part in the rescue process, and that is why the power to recognise such a body was included in the Bill. Put another way, it is not essential that a nominee or supervisor need have the skills of an "undertaker" which is the way of commonly characterising an insolvency practitioner, as well as those of a "doctor"; he only needs those of the "doctor" to achieve the rescue.
It is clear that the Secretary of State would only recognise bodies which have in place suitable regimes to ensure that their members are up to the required standards. That regime will, of course, include suitable provision for recognition and measurement of skills, education and training, experience and so on. I do not see why any nominees or supervisors who could have been authorised in this clause should be thought to be "not up to the mark", as the noble Baroness, Lady
We should not ignore the fact that some voluntary arrangements never get off the ground because the company or debtor concerned cannot afford the fees of the insolvency practitioner. If these amendments are passed it will prevent people coming into the marketplace who are capable of doing those jobs of nominee and supervisor to a satisfactory standard and perhaps at a lower cost. However, I cannot over-emphasise that the reason for taking this power is to ensure that we can harness skills which, but for Clause 4 in its original and unamended form, would not be available to those attempting a rescue. We see no reason why standards should drop if the Secretary of State is allowed to recognise new bodies under new Section 389A.
From what was said on Second Reading, and here again today, it is clear that noble Lords are content with the Secretary of State's ability to recognise bodies to authorise insolvency practitioners. It will therefore be understood that we are slightly puzzled when it is suggested that the new class of nominee and supervisor will not be up to the mark. For that to be the case, it has to be assumed that the Secretary of State would recognise a body which did not have in place an appropriate regulatory regime meeting the requirements of Clause 4. That will simply not be the caseif a body cannot come up with a suitable regime to ensure that those it would authorise are up to the mark, it will not be recognised under Clause 4.
The regime of a body recognised under Clause 4 may, of course, be different from that of a body recognised under Section 391, since the members of a body recognised under Clause 4 will only be authorised to act as nominees and supervisors and not as insolvency practitioners generally.
I do, however, recognise that a difference between Section 391(2) of the Insolvency Act 1986 and what will be new Section 389A(5) may have caused some of the concern regarding standards. That may have resulted in the two amendments to which the noble Lord, Lord Sharman, has spoken. Section 391(2) refers to the recognition of a body which "regulates the practice of a profession" whereas new Section 389A(5) does not. But nothing of significance should be lost by that difference.
If it is suggested that the new breed of nominee supervisor would only recognise a voluntary arrangement, I would reply that the recognition of bodies under Section 391 of the Insolvency Act 1986 is only for the purpose of authorising individuals to act as insolvency practitioners, say as the liquidator and administrator of a company, or as a trustee in bankruptcy; or, indeed, as a nominee or supervisor. Thus recognition of a body under Clause 4 is only for the purpose of authorising individuals to act as nominee and supervisor. Neither power purports to regulate the provision of advice to a company or debtor that is in financial difficulties.
Such companies and debtors should seek advice from those they consider most suited to give it. That may or may not be an individual authorised by a body recognised under Section 391 or Clause 4. We simply do not accept that this point is valid. We consider that it is important that those who have the skills to achieve a rescue by way of a voluntary arrangement are able to assist companies and debtors in this way. Even the Association of Business Recovery and Professionals recognises that people other than insolvency practitioners already have skills which can usefully be brought to bear in achieving a rescue.
We consider that the Secretary of State will be able to ensure that recognition is only given to a body under Clause 4, where it can ensure that its members are up to standard and conduct themselves in an appropriate manner. Any concerns about the ability of those authorised by virtue of Clause 4 to do their job properly as nominee or supervisor should be unfounded. If standards are not maintained, the Secretary of State can revoke an order recognising a body under Clause 4. Under those circumstances, we cannot accept these amendments.
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