Legislative Reform (Insolvency) (Advertising Requirements) Order 2009

My Lords, the order will amend the advertising requirements in the Insolvency Act 1986 in relation to voluntary liquidations. This House will already be aware of the real help that we are offering businesses and those struggling to make ends meet during this time of economic difficulty. The order will provide further help to business by reducing some of the costs associated with insolvency. Before I set out what the order will do, I shall set out a brief history of it. The draft order was laid on 4 December 2008 using the affirmative resolution procedure. It was considered by the House of Lords Delegated Powers and Regulatory Reform Committee, which confirmed that it was content that the order should be allowed to progress as an affirmative instrument. The order was approved in the other place on 24 March. I move on to the detail. When a company finds itself unable to pay its debts, a liquidator is appointed to find and distribute the company assets. Today’s order will deal specifically with voluntary liquidations. In a voluntary liquidation, a meeting of the company’s creditors must be called under Sections 95 and 98 of the Insolvency Act 1986. Notice of the time and venue of this meeting must be sent directly to all known creditors and advertised in the London Gazette and two local newspapers that are circulated in the area where the company has its principal place of business. The order removes the obligation to advertise in two local newspapers and means that it will be up to the liquidator, under Section 95, or the company, under Section 98, to decide whether advertising is needed and, if it is, to choose the most appropriate method. It makes no change to the requirements to advertise in the London Gazette and for notices to be sent to all known creditors. These amendments to the Act are expected to deliver some £3 million a year in savings to business. Associated changes are being made to the Insolvency Rules 1986. These will come into force on 6 April this year and are expected to deliver further savings to business of some £14 million a year. Delivery of the advertising changes is the first step in a process to consolidate and modernise our insolvency legislation. That will be achieved by another legislative reform order, which we aim to lay soon, and further rules amendments. We brought this advertising order forward in advance of the wider reforms as we did not want to delay this useful measure. The savings to business expected from the remainder of the project are around £25 million per year. The savings from this order arise in respect of the £600 per case that will no longer be spent in an estimated 80 per cent of voluntary liquidations. This will increase the pot of money available to the creditors, because there is no reason why the change should result in any increase in the costs of conducting the liquidation, including the fees of the liquidator. Costs are not the only reason, however, for introducing the order. We also want to make sure that, where creditors’ money is spent, it is spent usefully. That could mean an advertisement in a local paper if the creditors are local. It could equally mean an announcement on a professional website or even a small slot on radio, if they are trying to reach a rural community. The requirement to use local newspapers goes right back to the beginning of the last century, when those who dealt with a company usually came from the same part of the country, but we do not think that such assumptions still hold good. The chances of local newspapers reaching unknown creditors who are not, as is perfectly possible, based in the same part of the country as the company are very limited. We should not be surprised that the Insolvency Service’s consultation about this proposal found that, in around 98 per cent of cases, no unknown creditors came forward as a result of the advertisements. So, in the vast majority of cases, these advertisements served no useful purpose. We have considered carefully whether this measure could be open to abuse. It could be argued that companies might wish to conceal their insolvency from their creditors and might be aided if there was no local newspaper advertisement. But adequate measures are already in place to guard against concealment of creditors and those safeguards will not be undermined by the changes that we propose. The order will make a modest but useful difference to creditors who will have already suffered losses as a result of having dealt with the failed company. It will also give liquidators and companies greater freedom to target their advertising more effectively. During an economic downturn, we should do all we can to help business. It is for these reasons that I commend the order to the House.