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The noble Baroness said: My Lords, the Bill as drafted provides that if a creditors' meeting meets and decides to extend the moratorium and the company meeting meets but decides not to, the moratorium will be extended against the express wish of the members, unless, of course, the court orders otherwise under paragraph 35. But if the company meeting has not met, the moratorium comes to an end. In other words, the creditors would not have their wish even though no one had turned up for the company meeting. That is clearly a perverse outcome.
I know that the Minister will agree with all I have said in speaking to this amendment as I have adopted precisely what he said in his positive remarks on Report. Indeed, in revisiting this amendment at Third Reading, I simply seek to probe the Minister--it is such an important point in our view--as to his thinking on the matter following Report stage. I beg to move.
Lord McIntosh of Haringey: My Lords, I do not know that my thinking has advanced much, but I reassure the noble Baroness, Lady Buscombe, that at any rate it has not gone backwards. We recognise that there is a serious point behind the amendment. We debated it in Committee and on Report. On Report, although not in Committee, I recognised that the Bill as drafted could lead to a curious outcome--what the noble Baroness calls a perverse outcome.
If the creditors' meeting met and decided to extend the moratorium and the company meeting met but decided not to, the moratorium would be extended against the express wishes of the shareholders--unless, of course, the court ordered otherwise under paragraph 35.
But if the company meeting had not met, the moratorium would come to an end. In other words, the creditors would not have their wish even though no one even turned up for the company meeting. That is certainly a perverse outcome. We consider it important that both the creditors and the members are
Baroness Buscombe: My Lords, I thank the Minister for his response and his reassurances. I look forward to seeing the amendments when they are tabled in another place. On that basis, I beg leave to withdraw the amendment.
The noble Lord said: My Lords, on Report the Minister said that these amendments were wrecking amendments. I protest. They accurately reflect the existing rights of floating charge holders when a petition for an administration order has been presented. In those circumstances, a floating charge holder is entitled to appoint an administrative receiver before an administration order is made. That right has existed since 1986 when the administration order was introduced. That right did not wreck the administration order procedure and we cannot see how that right continuing could possibly wreck the Bill.
As the Minister observed, the Cork committee saw that opportunities for business rescues were often lost when there was no floating charge holder to appoint a receiver to effect a rescue. The Government subsequently put in place the administration procedure but left intact the right to appoint a receiver whenever possible. The administration order procedure filled the gap either where there was no floating charge holder to appoint an administrative receiver or where the floating charge holder was unwilling to appoint an administrative receiver. The essence of these provisions was to provide an insolvency procedure instead of an administrative receivership.
The essence of the present proposals is to provide a new insolvency procedure even where a floating charge holder intends to appoint an administrative receiver. That goes beyond what the Cork committee recommended and, as the Minister is aware, seriously interferes with the rights of floating charge holders.
The Minister said that a floating charge holder might make it plain that he fully intended to appoint an administrative receiver the moment the moratorium came to an end. He said that that act itself might have an impact on the viability of the voluntary agreement, which could in turn cause the nominee to
Let us suppose that the floating charge holder makes it quite clear that he will do that; let us suppose that he does that in terms where even an authorised person can be left in no doubt whatever that the moment a voluntary arrangement is approved the floating charge holder will appoint an administrative receiver. In those circumstances the nominee would be under an obligation to withdraw his consent to act, thereby ending the moratorium and permitting the floating charge holder to appoint an administrative receiver.
What if the nominee does not withdraw his consent to act? He will compel the floating charge holder to apply to the court in those circumstances under paragraph 25. That application would add to the expense of appointing an administrative receiver and lead to delay, during which the company's movable assets could simply disappear. What possible benefit is that to anyone?
In my submission it would be more appropriate to leave a floating charge holder with the right to appoint an administrative receiver during the moratorium. It will then be up to the nominee or the directors to persuade the floating charge holder not to appoint an administrative receiver. They should try to do that by putting forward sensible arguments. That procedure has worked as regards administration orders because, as the Minister told us, recent research has shown that in some 50 per cent of administrations a floating charge was in existence but the floating charge holder agreed--or at least did not veto--an administration order.
I therefore reaffirm the point that I made in Committee: these provisions rewrite the bargain between the floating charge holders and companies and will deter lenders from making loans to small companies. That will be to the detriment of lenders and small companies. In contrast, there is no real benefit in delaying a floating charge holder appointing an administrative receiver. I beg to move.
Lord McIntosh of Haringey: My Lords, we are going over ground that we have covered already in the earlier stages of the Bill. I do not know that I have a great deal to add to what I said before but it is my duty to say it again.
Our purpose in legislating for the option of a moratorium in the company voluntary arrangement procedure is to provide a short respite for the directors of a company to put a rescue plan to the company and its creditors free from the immediate threat of individual creditor action. Of course, if that can be agreed, it is good all round--not only for the creditors but for the employees, shareholders, directors and the wider economy. To allow an administrative receiver to be appointed or a floating charge to crystallise in the moratorium period would, in our view, be counter-productive.
I am glad that the noble Lord, Lord Kingsland, and I are talking the same language this time. Previously, I was talking about a floating charge holder and the noble Lord was talking about a debenture holder. I am grateful that we can use the same terminology.
We see no good reason why a floating charge holder--which will often be a bank--should be exempted from the general stay. But let us look at the arguments that have been urged on us. On Report, the noble Lord, Lord Kingsland, suggested that floating charge holders might be severely prejudiced if they could not appoint an administrative receiver during the moratorium. We do not agree. Quite apart from the fact that the moratorium does not have any effect on security rights other than to stay them, the nominee has to be satisfied that a voluntary arrangement is likely to be agreed and implemented before a moratorium can be obtained. If the nominee is able to reach that conclusion, I simply cannot understand why the noble Lord, Lord Kingsland, thinks that things will deteriorate so badly during the moratorium.
If at some point during the moratorium the nominee concludes that a voluntary arrangement is not likely to be agreed, he is obliged immediately to withdraw his consent. The noble Lord returned to this point today: he said that the nominee might not bring the moratorium to an end and there would therefore have to be a costly application to the courts. The nominee has no choice in this matter. He would have to withdraw if he became aware that the charge holder fully intended to appoint a receiver at the end of the moratorium and he thought that that would scupper implementation of any agreed voluntary arrangement.
I quoted the Cork committee; the noble Lord, Lord Kingsland, has done the same. But in the review that preceded the Insolvency Act 1985, the Cork committee recognised that the process of receivership could rescue businesses; but it also saw that possible rescues were lost when there was no floating charge holder to appoint a receiver to effect the rescue. As a consequence, the administration procedure came into existence but left in place the right to appoint a receiver where that was possible.
I also said that research has shown that in some 50 per cent of administrations a floating charge does exist but the administration was agreed to--or not vetoed--by the floating charge holder. So what appeared to be an automatic preference of secured creditors for administrative receivership over administration has diminished over the years.
I also wonder why the noble Lord, Lord Kingsland, thinks that a bank will want to appoint an administrative receiver when there is a viable prospect of rescue. It would be contrary to the code of practice of the statement of principles of the British Bankers Association. That states that banks, which are usually the best placed creditor in terms of security,
Finally, it is strange to imagine that a voluntary arrangement procedure somehow takes place in a vacuum. We expect that in most cases the nominee will need to talk to the company's bankers, both before and during the moratorium. That may be in relation to funding during the moratorium. It will almost certainly be about their attitude to the rescue plan, and their interests will be taken into account by the nominee. But even if they were not, there is nothing to stop the bank making its views known to the nominee and challenging his decisions or actions, if appropriate. This is not some artificial process divorced from reality.
I have to repeat, though I will avoid using the offensive word "wrecking", that if these amendments were accepted they would defeat the purpose of the proposed legislation.
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