My Lords, I speak to Amendment 61ZA in the name of myself and my noble friend Lord Mendelsohn who is not able to be present today—I am sure to the considerable dismay of his growing fan club. I am sure that no one involved in this section of the Bill would resile from the view that we in the UK have an incredibly successful insolvency regime in terms of the numbers of businesses saved and jobs rescued from businesses that have gone into administration or insolvency. We have a much admired insolvency service within BIS and we recognise the good work that it does. From a regulatory and professional perspective, Britain’s regime is the envy of many countries around the world. It is a powerful regime with a strong track record of success. If we want to change it, we have to be clear that what we are doing is well argued and it should be done with care and caution.
The Government have returned to the subject of insolvency on a number of occasions, including in the Legal Aid, Sentencing and Punishment of Offenders Act, the Deregulation Bill and now in the Small Business, Enterprise and Employment Bill. It certainly gives the impression of a Government who are tinkering, rather than going for a bold expansive plan for this area. That is a pity because as we go through the Marshalled List today I think we will find that there are a number of issues which may need attention, if not now, in the near future.
Our amendment deals with Clause 114. Broadly we support any moves that make it easier for administrators or any other wronged parties to take action against fraudulent trading and to catch delinquent directors. The clause aims to do just that and we think it is a sensible change to allow administrators the same right
as liquidators to bring wrongful and fraudulent trading actions, and therefore allowing more actions to be taken overall. However, we have some reservations about how this clause will work in practice.
Company administration is a useful and important tool, which is often successful in terms of saving jobs and recouping creditors’ money. It aims to give the business the opportunity to trade out of the position that it is in. Often, employees who would lose their job under liquidation can retain their job under administration and move on to continue to work for a company under either similar or, usually, new ownership.
On that basis, it is important that we recognise that administration is an important tool for businesses that are struggling. However, administration is, at the moment, defined in terms of a short-term procedure, time-limited to 12 months. But some of the processes which are required to get a business back on its feet can take longer than 12 months. Therefore, this may act as a disincentive for businesses to go into administration; they may prefer liquidation.
In the other place, a similar amendment took as an example a business that had traded fraudulently or wrongfully. Clearly, it should be held to account for that, but in cases where that is likely it is important that we do not see businesses continuing to trade beyond the point where they are insolvent because they are frightened of the administration process. Does the Minister agree that extending the provisions on liquidations to administrations is unlikely of itself to deliver much practical change if businesses treat administration as a dynamic and short-term procedure and the existing time limits remain in place?
The period of one year, even allowing for possible extensions which I am aware are available within the procedures and can be granted but need to be applied for, does not generally allow enough time to begin a wrongful trading action and see it through to conclusion before the end of the administration. This means that somebody else has to take on responsibility for that after the period of administration has occurred. There is a possibility, although I agree it might be remote, that the short timeframe could create incentives for delinquent directors to adopt obstructive and delaying tactics to hold up proceedings, and therefore get away with wrongdoing. So we on this side are not convinced that extending the wrongful and fraudulent trading provisions into the realm of administration will be successful as long as the provision for automatic termination of administrations within one year remains. That is why the amendment we have proposed to this clause gives the Government the opportunity and space to address these concerns by investigating whether that period of administration should be extended in more general terms or, if not, by considering the likelihood of this new regulation delivering what the Government intend.
The Minister’s colleague in another place suggested that the evidence from Companies House data for a sample of cases has shown that around 90% of administrations are concluded within two years. We think, therefore, that a two-year period would be better for this new initiative, although we would like to see more evidence before a decision is reached. I beg to move.