Deregulation Act 2015 and Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) (Savings) Regulations 2017

Lord Stevenson of Balmacara Excerpts

Thursday 30th March 2017 Lords Chamber

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the Minister very much for that detailed explanation. I welcome the streamlining and digitising of the system, which is well overdue.

I raise two points, which I hope the Minister can answer. On the European Convention on Human Rights, the Minister for Small Business says:

“In my view, the provisions of the”,


various regulations,

“are compatible with the Convention rights”.

Can the Minister be a little more definite on what legal opinions the Government have taken on these regulations post-Brexit, which is around the corner? The Minister for Small Business just gives her view rather than the legal view, which the House is entitled to hear.

The other points I take up with the Minister are the non-requirement of creditors meetings and the streamlining of methods. That is absolutely ideal and it is the way to reduce the costs, but there is no mention in this legislation or the Minister’s introduction of the statutory instrument of the not insubstantial insolvency fees coming out of the carcass of an insolvency. I am a registered chartered accountant, though I have never been an insolvency practitioner, but I have seen, sadly, many of my clients being subject to bankruptcy and insolvency. The one thing that I have always thought a little worrying was that the insolvency practitioners’ fees—with all insolvency practitioners—come out of the carcass of that insolvency before anybody else gets a dip into it. By streamlining it in the way we have, I wonder whether the Minister and the Government’s civil servants have looked at the attitude of creditors to the size of and, sometimes, lack of change in the level of insolvency fees. It tends to happen in smaller bankruptcies that, after the insolvency practitioner has charged their fees—at a not insubstantial hourly rate, particularly in London—there is not much left.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I too thank the Minister for her very full introduction to this. I was involved in the passage of the Deregulation Bill 2015 and the Small Business, Enterprise and Employment Bill 2015, so I have some background and previous on this. I do not think the noble Lord, Lord Palmer, was involved, but he might be advised to read Hansard for both those Bills because extensive discussion of the points he raised took place on the primary legislation. It is not irrelevant for him to be referred to that because a number of very important points were made along the lines of the ones he made. Good responses were given by the Government at that time, which I recommend to him.

There was one point in what the noble Lord said that it would be useful to put on the record again. A lot of the Minister’s statement was concerned with making the case that these changes, which are in practice quite narrow, will make a huge difference to the insolvency arrangements. At the end of my remarks I will come to a couple of points on the broader picture here.

In truth, the main debates we had on the Bills that led to this statutory instrument were about the rule of 10. A lot of weight and some cost savings were put on the idea that control of the liquidations and insolvencies mentioned in the statutory instrument had passed too far away from creditors across to insolvency practitioners. Indeed, the question of fees still needs to be addressed. The arguments used and the decisions that came up did not back up that assertion.

Ultimately, the proposal was to abolish the meeting of creditors, at which some exercise by creditors could be played out in full. The point was made by so many people around the business and many insolvency practitioners that the creditors’ meeting was really the meat of any insolvency. I am sure that the noble Lord, Lord Palmer, would say the same, even though he is not a direct practitioner: it is only when you get the creditors around the table with the IP person that you get the chance to work out exactly what will come and how much will be paid to each of them.

There was also an assumption behind the Bill that was not borne out in practice, which is that all creditors are equal, that somehow the decisions would always be accepted by a group of creditors if they were brought together and that that could therefore be replicated in a virtual space. That is not the case. In most small business insolvencies there is usually a major creditor—usually a bank—that is completely intransigent. The problem is not one of trying to resolve how much is divvied up between them, but trying to get the bank to agree to terms that do not freeze out the smaller creditors, many of whose businesses will suffer if they cannot get the proceeds from the insolvency.

The compromise position that we came up with of a rule of 10 was that you could have a meeting if it was 10% by value of the creditors, 10% of the number of creditors or 10 creditors. It was an uncomfortable compromise. I am sure that the Box would agree that we did not find a very good position on this, but it was the best way of trying to balance those competing issues that I have identified. The overbearing behaviour of the single big creditor, the difficulty of trying to reach out to the smaller creditors and the position of the insolvency practitioner as the person who ran this all play against the creditors being in control. We should not underplay that point.

It is true that the new technologies will help. The noble Baroness did not mention the change in the language, but it is quite striking in these regulations, with a move away from “meetings must be held” to “processes may be carried out”—from the negative, “You are in problems if you do not do it this way”, to the permissive, “If you do it this way, there is a recognition of how it will happen”. That will prove more beneficial in the long run than much of what we have been talking about. Nevertheless, we broadly support what has happened. These are the natural consequences of the discussions held during the passage of the Small Business, Enterprise and Employment Bill and the Deregulation Bill. They are appropriate and I am extremely grateful to see that they will be brought in on 6 April.