Small Business, Enterprise and Employment Bill

Debate between Lord Cope of Berkeley and Lord Leigh of Hurley

Wednesday 21st January 2015 Grand Committee

[Lord Leigh of Hurley]

I rise to support my noble friend Lord Flight—I do not want to get into the habit but in this instance I do. I, too, pay tribute to R3—I hope my noble friend the Minister is not feeling left out here. I have also had a chance to speak to the people from R3 and meet them. I have known them for many years because when I was chairman of the corporate finance faculty of the Institute of Chartered Accountants in England and Wales, R3 was set up and I have remained in touch with it. R3 does a good job, as had been said around the Room. The insolvency profession in the UK is the envy of the world and R3 has helpfully given us some information to prove it.

All that having been said, there are instances of insolvency practitioners charging frankly eye-watering fees, in some famous instances greater than the sums they have returned to creditors, and in some instances there have been suggestions that they have stopped at the point where no more fees could be taken out of the company concerned. For this reason, more perhaps than many other reasons, I feel it is helpful to encourage creditors to meet. Creditors in these circumstances will include people who are in fact investors in a company, through mezzanine debt or something like that, and have a vested interest. As I confessed earlier on, I have been in such rooms. It is useful to see and meet fellow creditors because a dialogue will then exist between creditors outside the liquidator’s fees, and plans and actions take place. Often in such circumstances, there is, for example, potential litigation—which was discussed in earlier clauses—that might take place against a bank, perhaps, or even against a director, so meeting other creditors in the same environment is very helpful.

The suggestion that 10% of creditors should be required to call a physical meeting does not sound onerous but it could build delays into the insolvency process and increase costs. Attention has been drawn to a recent insolvency, that of a wedding gift website. In that instance, 10% of the value of the creditors was equivalent to hundreds of individuals. In the case of small businesses where debts are typically low, in value terms, it would take a large number of creditors to get to the 10% threshold. For these reasons, I support the amendment.

[Lord Cope of Berkeley (Con)]

My Lords, I, too, am sympathetic to a lot of what my noble friend Lord Flight said and what the Federation of Small Businesses and others have represented to us all, or to many of us anyway.

I am particularly concerned about the position of trade creditors who find themselves involved in a liquidation, a bankruptcy or whatever. What matters to them is not 10% of the total amount owed by the company; it is the percentage of their own turnover that matters. What can be quite a small sum in the bankruptcy as a whole may be a very large sum relative to the business of the trade creditor. At the same time, I understand that in some respects the system of meetings we currently have is a rather Victorian process, carried forward. I encourage the Government to consider looking for ways in which the process can be streamlined and brought up to date.

I want to make a quite separate point which is just about relevant to this point in the Bill. It is that once we have finished with this Bill and it becomes a law, the Insolvency Act 1986 seriously needs consolidation. When we get to the stage where sections such as 246ZF and a whole lot of others will be littering the Insolvency Act and a whole lot more as a result of this Bill—quite apart from other amendments that have been made or may be made to it—it will be a terrible muddle. I realise that the legal publishers will straighten it all out for us to some extent in their consolidated publications on legislation, but the Act seriously needs consolidation. Once all this is over, I hope the Minister will urge that on the department and get the process to move, because we all know that it is a very slow process.

Part of my interest in this is that the trade creditors need to have an idea of what is going on. If they look at the Act and discover it littered with sections such as 246ZF and so on, it will be even more difficult for them to do so. As others have said throughout the debate, it is important that there is transparency. Understanding of what is going on needs to be possible, even for those who are not doing it all the time. Of course, the creditors will have guidance from the insolvency practitioners, and I share the view of them that has been expressed. I have much less experience than my noble friend Lord Leigh; I, too, am a member of the Institute of Chartered Accountants, though by no means as distinguished a one as he, but I do share that view.