Schedule 22 - Individual voluntary arrangement

Enterprise Bill – in a Public Bill Committee am 5:15 pm ar 14 Mai 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 5:15, 14 Mai 2002

I beg to move amendment No. 451, in page 291, line 21, leave out 'a bankruptcy debt' and insert

'a debt which is a bankruptcy debt or would be a bankruptcy debt if a bankruptcy order were made in relation to the debtor on the day the official receiver considers whether subsection (2) applies'.

Photo of Mr Nigel Beard Mr Nigel Beard Llafur, Bexleyheath and Crayford

With this we may take the following amendments: No. 452, in page 291, leave out lines 27 to 32 and insert—

'(b) must include an invitation to creditors to approve the voluntary arrangement in accordance with section 258 and the Rules.'.

No. 453, in page 291, line 32, at end insert—

'(4A) When applying to section 258 and the Rules to subsection (4)—

(a) references to section 257 shall be omitted,

(b) subsection (3) of section 258 shall not apply, and

(c) the meeting may approve the proposed voluntary arrangement with modifications but shall not do so unless both the debtor and the official receiver consent to each modification.'.

No. 436, in page 292, line 1, after 'court', insert 'and the creditors'.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I am indebted again to PricewaterhouseCoopers for the group of amendments. They are designed to approach some practical issues in the schedule, which deals with the nuts and bolts of IVAs under the Bill.

First, I shall speak to amendment No. 451. I am told that to restrict the definition of creditor to those who were creditors at the date of the bankruptcy could prejudice those who became creditors after the bankruptcy order. Under proposed new section 263A of the Insolvency Act 1986, fast-track IVAs can be proposed at any time before the debtor is discharged, which could be up to 12 months after the bankruptcy order. The amendment brings proposed new section 263B(3)(a) of the 1986 Act into line with the existing provision on IVAs for undischarged bankrupts, which hon. Members will readily recall is section 257(3) of that Act.

Amendments Nos. 452 and 453 go together. Some provision must suggest modifications when, for example, creditors are aware of undisclosed assets. Without such a provision, many arrangements may be doomed to fail or end up in the courts. It has been suggested that there should not be a mechanism for the appointment of the supervisor other than the official receiver. To facilitate that, there must be an opportunity for a meeting of creditors on the same basis as for other IVAs.

As drafted, proposed new section 263B(4)(b) permits the official receiver to decide his own criteria for judging whether the proposed voluntary arrangement has been accepted. In theory, he could say that the proposal would be accepted if 1 per cent. of the creditors voted in favour, which is obviously nonsense and would be unacceptable. The criteria for the acceptance of a fast-track IVA should be the same as for any other IVA: to ensure consistency with them and between different official receiver officers. If accepted, amendments Nos. 452 and 453 would bring proposed new section 263B into line with provisions related to other IVAs, but with additional protection for the official receiver.

Amendment No. 436 would deal with the fact that the Bill does not provide for creditors to be notified of the outcome of a fast-track IVA proposal. They could therefore be aware that such an IVA had been

proposed, but not whether it had been approved. That is unacceptable, especially as the creditors will be bound by the IVA if it is approved. The amendment would simply bring the fast-track IVA into line with other IVAs, and would be a sensible and practical improvement to the Bill.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

On amendment No. 451, those who are currently eligible to vote are creditors in relation to a bankruptcy debt—those whose claims run up to the date of bankruptcy. The provision does not allow any creditor to claim for a debt or liability, or for a debt or liability arising out of an obligation occurring after the bankruptcy. The amendment would allow creditors of a debt or liability incurred after bankruptcy, or of debts or liabilities arising out of obligations occurring after bankruptcy, up to the date of the official receiver's decision on whether the IVA is likely to be approved, to vote on a proposal for an IVA.

If debts are incurred, another bankruptcy order can be obtained in respect of them. There must be some cut-off point concerning the administration of the estate, and that is set by the 1986 Act as the date of the bankruptcy order. That approach is taken in all insolvency proceedings, including fast-track, post-bankruptcy IVAs. If debts are incurred after bankruptcy and are unpaid, the proper course of action is for that creditor to present another bankruptcy petition against the bankrupt.

One must also bear in mind that the bankruptcy order will be annulled after agreement to the fast-track IVA. Creditors of debts incurred after the bankruptcy order are not creditors in that bankruptcy. Furthermore, the rules on existing IVAs clearly set out two types of IVA case. Rule 5.1 of the Insolvency Rules 1986 sets out that case 1 applies where the debtor is an undischarged bankrupt and case 2 applies where he is not. Rule 5.17 sets out that creditors in case 1 are allowed to vote for amounts that are due up to the date of bankruptcy. It also provides that, in case 2, debts can be calculated up until the date of the creditors' meeting to approve, modify or reject the proposal.

That clear delineation between debtors who are undischarged bankrupts and those who are not has worked successfully since the Conservatives introduced IVAs in the 1986 Act. We have no wish to muddy the waters, which we would if we were to accept the amendments.

Amendments Nos. 452 and 453 propose the addition of further steps to the new regime for fast-track IVAs. They would require a creditors' meeting to be held to consider a debtor's proposal for an IVA. At the meeting, modifications to the proposal could be suggested, but would not be made unless the debtor and official receiver consented to them. That would add significantly to the costs of the process, as I am sure that the hon. Member for Eastbourne appreciates. It would also negate the purpose of fast-track IVAs, which are intended to provide low-cost arrangements in straightforward cases and make IVAs more accessible in small cases.

The fast-track procedure will not work to the disadvantage of creditors. The official receiver is well practised in assessing the level of income that bankrupts are able to pay, and he or she will agree to act only in cases where there is a reasonable level of returns to creditors. Creditors will still be able to reject the IVA if they are not satisfied. Therefore, little purpose would be served by the holding of a meeting.

On amendment No. 436, we want to ensure that the result of the creditors' vote on the new fast-track IVA is also reported to the court, for which the Bill already provides. That will trigger the annulment of the bankruptcy in successful cases. However—to answer the point made by the hon. Member for Eastbourne, at least in part—we will prescribe in the insolvency rules for the new fast-track IVAs that creditors must be notified of the results of their votes at the same time as the result is reported to the court. That would reflect current IVA legislation under section 259 of the 1986 Act, whereby persons, other than the court, who are to be notified of the result of a creditors' meeting, are prescribed in rule 5.22. For that reason, I ask the hon. Gentleman to withdraw his amendment.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 5:30, 14 Mai 2002

I beg to move amendment No. 454, in page 293, leave out lines 29 to 34. This not a technical amendment, but one of principle. I am, again, indebted to PricewaterhouseCoopers. The proviso in subsection (1) restricts the official receiver to handling fast-track and other IVAs for undischarged bankrupts. Removal of that proviso would enable the official receiver to act as nominee or supervisor in any IVA. That is, in any view, beyond the traditional role of official receivers and it could be argued that it would put them into direct competition with private sector insolvency practitioners. Because official receivers are employees of the Insolvency Service, the service would be competing with those whom it is responsible for regulating. It would therefore have, on the face of it, a conflict of interest. That concerns practitioners and I think that they have a point.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

The amendment is to restrict the possibility, as the hon. Gentleman has said, that the new fast-track IVA regime can be extended by order to cases in which the debtor is not an undischarged bankrupt. We have no plans to do that at the moment, but we would want to keep open the possibility of extending fast-track IVAs to other cases, should the scheme prove popular with debtors and creditors. Therefore, we have provided an order-making power to allow the Secretary of State to repeal the proviso that the official receiver can act as nominee or supervisor only in post-bankruptcy IVAs. Any exercise of that power will be subject to affirmative resolution with the full consideration of both this House and the other place.

The fast-track regime is aimed at generating more monies for creditors and getting more people out of bankruptcy. It will also have a more transparent fee

regime than does the current IVA regime. A number of us have received complaints from constituents about the fees charged by some, certainly not all, insolvency practitioners. If the new fast-track regime results in some insolvency practitioners charging lower fees and being more transparent about their costs, I do not see that as bad thing. A little healthy competition is good for consumers, as we have already debated at length when considering earlier parts of the Bill.

I am sure that Opposition Members would not want to be branded as people who are protecting insolvency practitioners from an element of competition. I do not accept their argument that there is something unfair about the competition, so I hope that they feel able to withdraw the amendment.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

It is a bit unreal for the Under-Secretary to lecture Conservative Committee members about the benefits of competition. We are firmly committed to red-blooded, healthy competition. However, does she not at least consider the possibility that it might reasonably be said that it is unhealthy competition when an arm of Government is competing with private practitioners? She might have a point about their fee structure, with which I do not necessarily disagree, but why should they have to compete with an arm of Government with all the resources that that has at its disposal? I am so alarmed by what she has said that I am even more wedded to the amendment.

The Under-Secretary has prompted a range of other questions, including, for example, will there be cross-subsidy within the Insolvency Service, in terms of competing, healthily or otherwise, with private insolvency practitioners? She has tweaked the curtain and revealed the true purport of this, which is to have what she calls healthy competition. That raises a lot of serious questions and I suspect that we shall return to the matter on Report, once the insolvency practitioners have had a chance to digest the full implications of what the Under-Secretary has said. However, for the moment I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 22 ordered to stand part of the Bill.