New clause 13 - Application of law about company arrangementor administration to non-company

Enterprise Bill – in a Public Bill Committee am 10:00 am ar 16 Mai 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

'.—(1) The Treasury may with the concurrence of the Secretary of State by order provide for a company arrangement or administration provision to apply (with or without modification) in relation to—

(a) a society registered under the Industrial and Provident Societies Act 1965 (c. 12),

(b) a society registered under section 7(1)(b), (c), (d), (e) or (f) of the Friendly Societies Act 1974 (c. 46),

(c) a friendly society within the meaning of the Friendly Societies Act 1992 (c. 40), or

(d) an unregistered friendly society.

(2) In subsection (1) ''company arrangement or administration provision'' means—

(a) a provision of Part I of the Insolvency Act 1986 (c. 45) (company voluntary arrangements),

(b) a provision of Part II of that Act (administration), and

(c) section 425 of the Companies Act 1985 (c. 6) (compromise or arrangement with creditors).

(3) An order under this section—

(a) may make provision generally or for a specified purpose only,

(b) may make different provision for different purposes, and

(c) may make transitional, consequential or incidental provision.

(4) Provision by virtue of subsection (3)(c) may, in particular—

(a) apply an enactment (with or without modification);

(b) amend an enactment.

(5) An order under this section—

(a) must be made by statutory instrument, and

(b) shall be subject to annulment in pursuance of a resolution of either House of Parliament.'.—[Mr. Gareth R. Thomas]

Brought up, and read the First time.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party 10:15, 16 Mai 2002

I beg to move, That the clause be read a Second time.

The purpose of the clause is to enable the Treasury and the DTI, if they are so minded, to allow industrial and provident societies to take advantage of administration orders and company arrangements, which are available to companies in trouble and have been since corporate insolvency law was reformed in 1986. The legal forms of the industrial and provident society and the friendly society are used by a range of businesses that operate and compete on the same ground as those businesses that use the company legal model. The larger retail co-operative businesses and credit unions are examples of that.

Industrial and provident societies and friendly societies are distinguished from companies because they operate on the basis of mutuality. They seek to serve the interests of their members or in the case of some types of industrial and provident society, of the community. As businesses, they are nevertheless subject to the same risks and opportunities as the businesses using the company legal model with whom they compete. Sadly, there is the same possibility of insolvency. The fact that they are not able to use all the same rescue procedures potentially places them at a significant disadvantage.

A case in 1993, re Devon and Somerset Farmers Ltd., concerned a co-operative that had gone bust. It went to court, where the judge refused to interpret the definition of a company to include industrial and provident societies. That judgment made it clear that industrial and provident societies—friendly societies are similarly affected—cannot take advantage of the options of an administration order or company arrangement, simply because they are not covered by the term ''company'' in the legislation. Unlike another type of mutual—the building society—they have not had the modernising legislation to allow them those options.

The problem for industrial and provident societies is that the administration order and the company voluntary arrangement approach were not established concepts when the last major reform of industrial and provident societies took place in 1965. Hon. Members will know that a rather excellent private Member's Bill—the Industrial and Provident Societies Bill—has just gone through the House with, I am delighted to say, all-party support. It is now in the House of Lords. That Bill seeks to modernise certain key parts of the legislation relating to such societies. Nevertheless, there is a gap in our legislation, an anomaly that precludes industrial and provident societies and

friendly societies from benefiting, should they get into trouble, from the administration order and company voluntary arrangement process.

There have been cases in which the lack of those tools has caused difficulty. In one example from June 1993, the Northern Co-operative Society, a Scottish consumer co-operative, had to go into liquidation, and because the administration procedure was unavailable to it at the time, rescue or partial rescue of the business could not be considered. The co-operative had to use the liquidation tool that was applicable to it. On that basis, I hope that hon. Members will agree that new clause 13 should be added to the Bill, so that if the Treasury and the Department of Trade and Industry are so minded, suitable statutory instruments can be drafted to allow two additional tools of rescue to apply to industrial and provident societies and friendly societies.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

The provision seems sensible, and I hope that the Under-Secretary will smile on it, even if not in this form. The hon. Gentleman talked with characteristic modesty about his private Member's Bill, which has all-party support and is making good progress.

I want to raise briefly the issue of registered social landlords. I tabled an amendment from the Council of Mortgage Lenders, which arrived too late for us to debate it in Committee, about the position of those who provide loans to housing associations. I do not expect the Under-Secretary to deal with it in detail, but I want to put down a marker that we hope to return to the issue on Report. The amendment would allow such bodies to appoint an administrative receiver because—this is a similar point to that raised by the hon. Member for Harrow, West (Mr. Thomas)—they form a special category. The law of unintended consequences may take a hand here. The Under-Secretary may have noticed the amendment, and we hope to return to it, but if she has anything to say about it now, that would also be nice.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

I want to say a few words in support of the new clause. I am one of many hon. Members from both sides of the House who supported the private Member's Bill, which is important and covers many organisations such as British Legion clubs, as well as sports clubs, allotments and other organisations that use the provident society model and are potentially affected by the law that governs provident societies. The hon. Member for Harrow, West has achieved several objectives, notably strengthening mutual ownership against carpet-bagging. Although we are not concerned with that today, one of the key objectives of the Bill is to enable mutual organisations to keep up with corporate law, because one of the problems has been that provident societies have not been able to keep up with the advance of company law. The Bill would help to cover that gap, so I urge the Under-Secretary to accept the hon. Gentleman's suggestions.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

Without professing to have detailed knowledge of mutual societies, I think that the proposal seems sensible. I noted that the hon. Member

for Harrow, West spoke about giving mutuals the benefit of voluntary insolvency procedures. I would be interested to hear from the Under-Secretary whether compulsory insolvency procedures would also apply to those bodies, or whether they already do.

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

I am grateful to my hon. Friend the Member for Harrow, West for tabling the new clause. I am aware that, for some time, he has been championing the cause of modernising the legal framework for industrial and provident societies. Indeed, he is the promoter of a private Member's Bill on that, which has received its Third Reading in the House and now falls to be considered in the other place.

I agree with my hon. Friend that industrial and provident societies and friendly societies should be able to use a range of insolvency procedures, including administration, to provide access to rescue mechanisms as an alternative to winding up. Therefore, I welcome the new clause, which will help to extend the rescue culture that we are promoting in the Bill to industrial and provident societies and friendly societies.

The hon. Member for Eastbourne raised a particular point about the Council of Mortgage of Lenders, which has written to me, too, on that subject. It might, therefore, be helpful if I set out the legal position. Floating charge holders are not currently able to appoint administrative receivers over industrial and provident societies. That was established in the case of re Devon and Somerset Farmers Ltd., as mentioned by my hon. Friend the Member for Harrow, West. Fixed charge holders are able to appoint receivers over societies and that will continue to be the case.

The power contained in the new clause is an enabling power that will enable the Treasury to extend specified insolvency rescue procedures to certain mutual societies with whatever modifications are necessary to ensure that the procedures meet the needs of each society. It is a good idea to provide the power; it will enable mutual societies to make use of the rescue procedures where at present they can only be wound up. That has to be a positive development. I urge the Committee to accept the new clause.

Question put and agreed to.

Clause read a Second time and added to the Bill.