Scotland Act 1998 (Insolvency Functions) Order 2017

Lord Duncan of Springbank Excerpts

Wednesday 29th November 2017 Grand Committee

Moved by

[Lord Duncan of Springbank]

That the Grand Committee do consider the Scotland Act 1998 (Insolvency Functions) Order 2017.

[The Parliamentary Under-Secretary of State, Northern Ireland Office and Scotland Office (Lord Duncan of Springbank) (Con)]

My Lords, this order is one of a number of measures which are intended to update and modernise corporate insolvency in Scotland with particular regard to insolvency rules for the winding up of companies. This follows the Insolvency (England and Wales) Rules 2016, which modernised the process relating to company insolvency in England and Wales.

The law on corporate insolvency in Scotland and the respective legislative competences of the UK and Scottish Parliaments and Governments is complex. That is particularly the case with regard to winding up. For example, in relation to business associations, the general legal effect of winding up is reserved but the process of winding up is excepted from this reservation. Consequently, in practice, it is not always clear whether a winding-up matter is covered by reserved or devolved legislation.

To address this, and in order to facilitate the efficient, effective and user-friendly modernisation of, in particular, company insolvency rules for Scotland, both the UK and Scottish Governments agreed that we should legislate to remove the need for a complicated exercise of assessing which rules relate to a reserved matter. Accordingly, both Governments agreed to the preparation of a combined order under Section 63 and Section 108 of the Scotland Act 1998.

Section 63 of the 1998 Act enables an order to provide for any functions that are exercisable by a Minister of the Crown in or as regards Scotland to be exercisable by the Scottish Ministers concurrently with the Minister of the Crown. Section 108 of the 1998 Act enables an order to provide for any functions that are exercisable by a member of the Scottish Government to be exercisable by a Minister of the Crown concurrently with a member of the Scottish Government.

The order will therefore allow for the mutual conferring of functions between Scottish Ministers and a Minister of the Crown, so that both have the power to bring forward as appropriate winding-up rules or regulations for companies, incorporated friendly societies, and limited liability partnerships in Scotland irrespective of whether these rules or regulations relate to reserved matters under Schedule 5 to the Scotland Act 1998, or matters that are not reserved.

This approach will enable each Administration to make provision on winding-up matters without any doubt being cast on the scope of the relevant enabling powers. It will also ensure that the rules on the winding up of companies in Scotland will be contained in one instrument rather than split between two.

I hope that your Lordships share our view that this is a sensible step which will modernise the approach to corporate insolvency in Scotland. Furthermore, it demonstrates the benefits of two Governments working together to make the devolution settlement work for people and industry in Scotland. I beg to move.

[Lord McAvoy (Lab)]

My Lords, I thank the Minister for his explanation of the order, the first of many instruments to be debated today. I put on record my pleasure at operating under the chairmanship of the noble Lord, Lord Rogan. It is the first time I have operated under his chairmanship, and I hope he is kind and pleasant with me.

As we have heard, the order relates to corporate insolvency rules in Scotland and the complexities that arise due to winding up being a mixed area of competence. The Minister will no doubt have in mind the fact that the future may hold many more discussions about mixed areas of competence as we move forward with our exit out of the European Union. Fortunately, today’s order is intended to make an existing process simpler and has received general support. I place on record our support for it.

As the Minister explained, the order would confer mutual functions on Scottish Ministers and a Minister of the Crown so that both have the power to bring forward winding-up rules and regulations for Scotland in relation to companies, incorporated friendly societies and limited liability partnerships. We accept the arguments that this will alleviate an otherwise complex assessment of which matters are reserved in this specific area and assist in the modernisation of these rules as regards Scotland by ensuring the provisions are held in one single order rather than split across multiple instruments. We are content to support the order.

As I understand it, the provisions are made with an assurance that a Minister of the Crown will be able to exercise these functions only with the agreement of a member of the Scottish Government. I may be a doubting Thomas, but I am sure that occasionally a dispute may arise in the future and a challenge to the agreement. Has a procedure been envisaged for what happens if a conflict arises and the relevant Ministers find themselves in disagreement over the use of these powers? I am sure that we are all alert to the dangers not of disagreements, but of complex arrangements being misused and misquoted in Scotland as a tactic against the Westminster Parliament. Will the Minister answer that point?

--- Later in debate ---

[Baroness Donaghy (Lab)]

I, too, congratulate the noble Lord, Lord Rogan, on being in the chair, and I also congratulate the Minister. I read his moving maiden speech and welcome him to the Front Bench.

I am worrying away at the same point that four other noble Lords have raised. It is the phrase,

“by the Scottish Ministers and a Minister of the Crown”.

It may be because of my former ACAS chair hat, but I look for trouble—for how to sort it out before it happens, and for codes of practice. My questions are about what might seem a narrow point, but it is an extremely important one. Would this relationship be mutual? Would they both have to agree? That question has already been asked. Does one have precedence over the other? I think that has already been asked. Is there an intention to think about something like a code of practice for any eventuality, such as when they do not agree? If they do not agree, how will the delays that take place affect not only the companies but the workers involved in the lack of future of those companies? It is extremely important that, in any inbuilt possible conflict, we should consider the people who are going to be at the bottom end of it and might be detrimentally affected.

[Lord Duncan of Springbank]

My Lords, I thank noble Lords for those helpful questions. I, too, add my welcome to the noble Lord, Lord Rogan. We are the two new boys on the block and it is a pleasure to be under the noble Lord’s astute guidance. I also welcome the support from all sides for this approach. It has a number of important implications for how the two Governments work together, and I hope it will serve as a template for ongoing challenges in the near future, although one might argue that the waters will get choppier as we move forward.

The Minister of the Crown and the Scottish Government Ministers must reach agreement. Without agreement, there will be no progress. This therefore puts a great responsibility on both to recognise the point raised by the noble Baroness, Lady Donaghy, about what would happen if they do not do so. It places on their shoulders a very strong burden because they need to recognise that where there is no consent, there is no movement forward.

The noble Lord, Lord Bruce, asked whether it is just a question of notification. No, in actual fact, it is consent—both Ministers must consent to the process. It is not enough just to inform, which is why agreement must rest at the heart of it, which is important.

I thank the noble Lord, Lord Foulkes, for his kind words, which were very generous. He is right that there will almost certainly be many more SIs in the months to come. I cannot comment on that yet, but I do not doubt that he will keep an eye on the Government, and I think that that eye will be attached to very strong interventions whenever we stray from what he believes to be the correct approach. I am looking forward—I imagine—to those interventions in the months to come.

Tax evasion and limited liability partnerships are not covered within the wider ambit of the order, which is specifically about winding up. I too share the concerns that many of these areas can of course be done almost on a verbal basis and therefore move very swiftly, but in terms of the aspects of this particular issue, it is the winding up only. I hope it gives some confidence that in both instances it is about the consent of both parties, recognising each’s responsibility and duty in this regard, and moving forward on the basis of a consensus. I hope this will be a way of addressing that, but I recognise that that does not cover the wider issues raised, which are not within the scope of this particular approach.

The points of the noble Baroness, Lady Donaghy, were well made. I recognise that workers will suffer if the two Ministers in question cannot reach agreement. That is why I repeat that careful consideration must therefore be given to the implications of failure to reach that agreement. In most instances, I hope it will not be controversial, and there will be a strong recognition that these things must move forward swiftly. On that basis, I hope that I have the support of your Lordships this afternoon.

Motion agreed.