Scotland Bill

I thank the noble Lord, Lord Browne, for giving us an opportunity to look at this clause. Schedule 2 is also relevant to insolvency. As he indicated, there was a recommendation from the Calman commission that the UK Insolvency Service should be made responsible for laying down rules to be applied by insolvency practitioners on both sides of the border. The noble Lord asked a very pertinent question about why the Bill goes beyond the specific terms of the Calman commission’s recommendation. The commission was persuaded by evidence from stakeholders, such as the Law Society of Scotland and the Institute of Chartered Accountants of Scotland, that a consistent approach to winding up would bring significant benefits to creditors, companies, insolvency practitioners and others dealing with insolvent companies in both England and Wales and Scotland. The Institute of Chartered Accountants of Scotland said: "““We do not see any advantage in encouraging divergence of practice when businesses across the UK operate in a similar environment””," and, "““This will promote a more stable environment for corporate recovery and turnaround and be more comprehensible for creditors and potential investors””" Certainly in the present environment, that is an important consideration. Many winding-ups involve groups of companies that operate on both sides of the border. We believe that it will be more efficient in time and money if the same winding-up rules, other than where Scottish common law requires something else, are applied to each insolvent company in the group. These amendments will make reorganisations more efficient and increase returns to creditors and shareholders. Group reorganisations may involve subsidiaries being wound up, and a common approach to winding-up rules should help to reduce the cost and complexity of group restructurings whose constituent companies operate both in Scotland and in England and Wales. Indeed, in its evidence to the Calman commission, the Institute of Chartered Accountants of Scotland, which regulates most of the insolvency office-holders working in Scotland, highlighted the benefit of consistent rules in promoting a more stable environment for corporate recovery and turnaround. Further, the Law Society of Scotland reported in its evidence to the commission that, because of the increased number of insolvencies of groups of companies, practitioners have for a number of years been having difficulties where parts of the group are subject to the rules for England and Wales and parts to the Scottish rules. The Calman commission was persuaded that there should be a consistent approach to winding-up rules, and the UK Government agree with that position. The commission recognised that its first option for implementing its recommendation that the UK Insolvency Service, with appropriate input from the relevant departments of the Scottish Government, should be made responsible for laying down insolvency rules for England and Wales and Scotland might not be achievable for technical reasons. It therefore acknowledged that the devolution settlement might need to be amended to secure the desired effect. Perhaps I may explain to the noble Lord and the Committee why the Bill is somewhat different from the recommendation. The Insolvency Service has no powers to make rules. It is an executive agency of the Department for Business Innovation and Skills. Its officials advise Ministers. However, even if the commission had recommended that UK Ministers, in place of the Insolvency Service, be responsible for laying down rules in England and Wales and in Scotland, the first option would not be viable. With such an approach, legislative and executive competence in this area would remain with the Scottish Parliament and Scottish Ministers under the 1998 Act, who could thus overwrite rules made by the UK Parliament. That could lead to continued divergence and possibly more confusion, which is just what the commission was seeking to avoid. That is why we are adopting the second of the commission’s options—amending the 1998 Act—and re-reserving the winding-up of business associations in its entirety. The noble Lord also raised the issue of housing associations. I am well aware that there have been concerns about the effect of this clause on the Housing (Scotland) Act 2010 and on registered social landlords caused by the removal of the specific exception to the insolvency reservation relating to such bodies. This removal is a logical consequence of re-reserving legislative competence for the winding-up of business associations generally to ensure the coherence of corporate insolvency legislation. The provisions in this Bill relating to insolvency should therefore not be read as implying that we consider that the housing regulation regime should be changed. That is quite rightly a matter for the Scottish Government and the Scottish Parliament. We want to ensure that provisions of the Housing (Scotland) Act 2010 that rely on the exceptions are not undermined by the change to legislative competence in this area. This Bill already includes a power to make savings provisions, which could be used for the avoidance of doubt if any doubt arises. As for the future, we appreciate that there may be particular types of business association for which there is good justification for additional rules, and we think that those rules need to be considered and put in place by the UK Government to ensure coherence with the overall insolvency regime. I assure the Committee that we will be receptive to requests from the Scottish Government in relation to this sort of issue, as we always are when the Scottish Government need changes to be made to a reserved area in order to give full effect to their policy. Should it be appropriate, we would consider bringing forward Section 104 orders or UK legislation where necessary to bring this about. Both the Parliamentary Under-Secretary of State in the Scotland Office and I had meetings separately last year with the Scottish Federation of Housing Associations to hear and to try to ensure that we fully understood their concerns and to provide reassurances that we will preserve the effect of the Housing (Scotland) Act 2010, which will in turn protect the independence of the housing regulator. I am not sure of the date of the written representations to which the noble Lord referred from the Scottish Federation of Housing Associations. However, my officials have also met representatives from the SFHA, the Scottish housing regulator and the Scottish Government’s housing directorate to work through those reassurances in detail. We certainly believe that we had addressed the concerns of the Scottish Federation of Housing Associations. Clearly, if these concerns are still current, I would wish to have an opportunity to see them again because we thought that we had addressed them. Schedule 2 is introduced by Clause 12. We believe that having just one Parliament responsible for the rules relating to winding up in Scotland will aid flexibility and responsiveness, and will address problems that have been reported by insolvency office-holders when the law changed in one jurisdiction but not the other. In fact, we are taking the opportunity provided by the Bill to deliver for Scotland the benefits of modernisation changes, some of which have been in place in England and Wales, and for the existing reserved insolvency procedures in Scotland, for nearly three years now. These changes lift administrative burdens by allowing insolvency office-holders to make full use of advances in information technology made over the past quarter of a century to communicate with creditors, thus reducing the costs for the benefit of those creditors. The changes were made to reserved insolvency procedures in Scotland in 2009 and 2010 by a combination of legislative reform orders and subordinate legislation, but because of the present division of responsibility for rules between the UK and Scottish Parliaments the changes could not at that time be extended to windings-up in Scotland. That is an example of some of the unnecessary and confusing divergences that have developed between the two jurisdictions and that were brought to the attention of the Calman commission, which prompted the recommendations, the spirit of which the Government accept and are seeking to address in this legislation. We hope that as a result of this legislation we are ensuring that creditors of windings-up in Scotland are able to enjoy similar benefits to those provided to creditors of windings-up in England and Wales. This is sensible evidence-based legislation, and I therefore commend the clause and, when we come to it, Schedule 2 to the Committee and propose that they stand part of the Bill.