Small Business, Enterprise and Employment Bill

Lord Popat Excerpts

Wednesday 21st January 2015 Grand Committee

Moved by

[Lord Popat]

61A: Schedule 9, page 235, line 32, leave out “has effect” and insert “is to be taken as made”

[Lord Popat (Con)]

My Lords, this is a group of technical amendments to the provisions in the Bill relating to decision-making in insolvency proceedings, the way in which certain liquidators are appointed and clarifying the operation of the fees power in Clause 136. These amendments are part of the result of detailed discussions with stakeholders and contribute to the Government’s goal of ensuring that insolvency processes, including how decisions are made, are quick and efficient. I beg to move.

Amendment 61A agreed.

Moved by

[Lord Popat]

61B: Schedule 9, page 240, line 7, at end insert—
“( ) In paragraph 83(8)(d) omit “98,”.”

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Moved by

[Lord Popat]

61E: Schedule 9, page 242, line 19, at end insert—
“(4) After subsection (4A) insert—
“(4B) The company’s creditors may in accordance with the rules nominate a person to be liquidator.
(4C) The liquidator must in accordance with the rules seek such a nomination from the company’s creditors.”
(5) In subsection (8), for “this section” substitute “subsections (1) to (4A)”.”

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Moved by

[Lord Popat]

61M: Schedule 9, page 248, leave out line 8 and insert—
“(a) the company’s creditors under section 100 nominate a person to be liquidator, or(b) the procedure by which the company’s creditors were to have made such a nomination concludes without a nomination having been made.””

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Moved by

[Lord Popat]

61V: Schedule 9, page 257, line 2, at end insert—
“( ) for “replacing” substitute “removing”;”

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Moved by

[Lord Popat]

61W: Schedule 9, page 257, line 7, leave out from beginning to end of line 10 and insert—
““(4A) Where the bankrupt’s creditors decide to remove a trustee, they may in accordance with the rules appoint another person as trustee in his place.
(4B) Where the decision to remove a trustee is made under subsection (4), the decision does not take effect until the bankrupt’s creditors appoint another person as trustee in his place.””

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Moved by

[Lord Popat]

61X: Schedule 9, page 257, line 16, after third “the” insert “bankrupt’s”

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Moved by

[Lord Popat]

61Y: Schedule 9, page 257, line 22, leave out from “subsection” to end of line 25 and insert “(3)(a)—
(a) for the words from “case” to “died” substitute “following cases”;(b) after “hold office” insert “—”

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[Lord Stevenson of Balmacara]

My Lords, in moving Amendment 61ADE, I will also speak to Amendment 61ADF, which is in my name and that of my noble friend Lord Mendelsohn, who is sadly still absent. I am thinking in terms of search parties, particularly if my noble friend Lord Mitchell is proposing to stand in his place, which, of course, he is perfectly entitled to do.

As the law stands, in order to receive a dividend in an insolvency, a creditor must first submit a claim to the officeholder, who, where necessary, will request further evidence to verify that claim. Clauses 128 and 129 simplify the process for what the Government term “small debts”, so that in future such creditors do not have to prove their ownership of the debt in the same way. Clause 128 takes care of company insolvencies, while Clause 129 takes care of individual insolvencies. We do not object to the principle behind such moves, but I am quite concerned that the figure of £1,000 that the Government have floated for the prescribed amount is a little too high, and I would be interested to hear how the Government arrived at £1,000. I appreciate that provisions will remain in place for the insolvency practitioner to require further information where they have suspicion or doubt, but the clauses seem to set a dangerous precedent that a business can claim amounts of up to £1,000 without any evidence.

We all know that in the event of a corporate insolvency, or even a personal insolvency, there is a certain amount of chaos around. In the corporate case, employees are often desperately attempting to find alternative employment, with the pressure of their mortgages hanging over their heads and the business that they expected would be capable of paying them, and to which they were dedicating their careers, looking increasingly vulnerable and unable to do so. Under those circumstances, many normal practices might go out of the window. It is also the case that insolvent companies have been in a less than ordered state in the run-up to declaring themselves insolvent or bringing administrators in, and they are often scrambling around to find anyone that they are not on stop with to purchase supplies in order to stay afloat. Purchase order numbers and other systems may well become irregularly used. In those circumstances, it is a very dangerous step for any business to be able to say, “We have an outstanding invoice for £826, can you send it to us? We do not need to provide any evidence under the new law, and documentation is not required to show whether the goods were received”.

I understand the thinking behind this, but I am just a bit worried about some of the issues. The particularity of this applies more to personal insolvency, as we are talking about claims up to £1,000, which is obviously quite a significant amount in those circumstances. Again, is it right to remove the need for proof for any bill up to £1,000 in a personal bankruptcy when some of the limits are relatively small, particularly in relation to DROs? It is clear that we should all try to make sure that costs are taken out of bankruptcy administrative processes. Where these are small amounts, there may well be a way that they should be dealt with that does not require too much effort and red tape. However, a bar of £1,000, particularly for individual insolvency, is quite significant. I would be grateful if the Minister could respond to us on these points. I beg to move.

[Lord Popat]

My Lords, I thank the noble Lord, Lord Stevenson, for tabling these amendments to Clauses 128 and 129.

Clauses 128 and 129 are part of a package of measures designed to streamline and modernise insolvency proceedings and remove unnecessary burdens. Creditors will be the ones to benefit from efficiency savings as lower costs will mean increased dividends.

Clauses 128 and 129 will provide a power to make rules that will allow an insolvency officeholder to pay a dividend to a creditor without the need for the creditor to submit a formal claim. This may be done on the basis that the creditor’s debt has been recorded in the insolvent’s accounting records or statement of affairs. As a safeguard, the officeholder will still be able to require a creditor to provide a claim and, if necessary, supporting evidence, before accepting that a debt is owed and paying a dividend.

During debate in the other place, the Government agreed to undertake further consultation on what the limit for a small debt should be. I would not want to pre-empt that process now by setting the limit before stakeholders have had a chance to put forward their views. We will invite views from stakeholders shortly and will carefully consider the responses submitted before setting out in secondary legislation what the limits will be. The noble Lord quoted a figure of £1,000 for both corporate and personal insolvencies. We believe that draws the right balance between delivering efficiency savings and ensuring that adequate scrutiny is undertaken, but we will, of course, listen to what stakeholders have to say. The stakeholders will give us evidence of what the amount should be. I will also add for the sake of clarity that the small debt limit relates to the amount of the debt and not the actual dividend that the creditor is likely to receive, which is likely to be a significantly smaller sum. It seems inevitable, however, that at some point, whether due to inflation or perhaps something else that is less foreseeable, the limits will need reviewing. Setting the limits in secondary legislation will provide greater flexibility to amend them where it is considered appropriate without needing to amend primary legislation on each occasion.

I hope that the noble Lord has found my explanation reassuring and, on this basis, will withdraw his amendments.

[Lord Stevenson of Balmacara]

I am grateful to the Minister for his comments. I understand the point that while consultation is going on, obviously it would be premature to come to a resolution on this. However, I suggest that it might be sensible to think about a different approach for the corporate to that for the personal. They are completely different beasts. Presumably we are talking about personal insolvencies at the DRO level and I think that there should be some relationship to the new limits that have been brought in for that, which give us a sense of what the amount—admittedly reduced by the proportion that will be available for reallocation to creditors, which might be as low as 10, 15 or 20 pence in the pound—should be. I understand where the Government are coming from. This is a matter that should be borne in mind but, after those comments, I would be grateful if this amendment could be withdrawn.

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Moved by

[Lord Popat]

61AE: Clause 136, page 116, line 2, at end insert—
“(2) In section 415A of the Insolvency Act 1986 (fees orders: general), after subsection (1A) (inserted by section 17 of the Deregulation Act 2015) insert—
“(1B) In setting under subsection (1) the amount of a fee in connection with maintenance of recognition, the matters to which the Secretary of State may have regard include, in particular, the costs of the Secretary of State in connection with any functions under sections 391D, 391E, 391J, 391K and 391N.””