I thank the noble Lord for helping us to probe the effectiveness of Clause 114, which of course was put forward as part of the Red Tape Challenge. Like him, I am sorry that the noble Lord, Lord Mendelsohn, is not here today. I thank the noble Lord, Lord Stevenson, for his kind words about BIS and the Insolvency Service, which of course has been intimately involved in preparing for the Bill and associated legislation.
Because of our concern to help small business, insolvency has recently been subject to the Red Tape Challenge, and suggestions made from across all parts of the industry have been incorporated into this Bill. Alongside measures being taken forward elsewhere, these clauses on insolvency will lead to improvements in the efficiency of our processes. The efficiencies will provide a total of over £30 million a year more for creditors, many of whom of course are small businesses—which underlines the purpose of the Bill.
Administration is the primary corporate rescue procedure in the UK. It is well respected internationally for its speed and the size of its returns to creditors, which many compare favourably with similar procedures in other countries such as Chapter 11 in the USA, which was mentioned at Second Reading. We are working with the industry to take forward the voluntary reforms set out by the Graham review, while taking a new power—this is important—in case the voluntary reforms do not bring the desired confidence.
Amendment 61ZA would delay the introduction of this clause and would force government to review the impact of abolishing the administration duration time limit. Administration is a dynamic procedure, and we want administrators to take swift action to restructure and rescue businesses where at all possible. For this reason, there are time limits; I think there is agreement that there should be.
Currently, administration lasts for 12 months with the option to extend it by six months. With the consent of creditors, we are seeking to extend this to 12 months. We do not consider that an administration should last indefinitely and do not intend to review the time period further. To allow companies to remain in administration for longer than necessary would add unnecessary expense to the procedure and, in some cases, might even give the insolvent business an unfair advantage over competitors.
I take the point the noble Lord, Lord Stevenson, made, that where an administrator commences a wrongful or fraudulent trading action he fears that the claim could take more than a year or two to complete. However, I do not think that that time limit will necessarily reduce the effectiveness of the right proposed under Clause 114.
During debate in the other place, concern was raised as to whether this clause will be used, bearing in mind that it may take longer to conclude such a claim. However, Clause 124 will enable creditors of the company to consent to an extension of the administration by an additional year, and the court has power to grant extensions beyond that.
Clause 114 was suggested by insolvency practitioners as part of the Red Tape Challenge. Our earlier consultation suggested that delaying its introduction pending a review, or completely removing the time limit on administration, would not be well supported by many stakeholders, particularly creditor groups. For this reason I hope that the noble Lord will be reassured and will withdraw his amendment.