My Lords, the amendments in this group are rather unfortunately grouped together, as there are two issues. I will take them in a slightly odd order to bring out the points. I hope that will make it easier to engage when the debate starts.
Amendment 40 is again about the education administrator. The point that we ended the last group on is the question of whether that person would have sufficient relevance, experience and knowledge of the further education sector. Those persons who have responsibility for doing insolvencies and wind-ups are usually accountants, who are the butt of staple jokes about vision, intelligence and depth of understanding. Of course, I am an accountant, so I can say all these things. On the other hand, it is fair to say that the judgments that the person responsible for a special education administration system are going to have to make will rather stretch that stereotyped approach, because effectively that person will take over the responsibilities of running an FE college with thousands of students and making decisions that will affect thousands of lives on a longer-term basis.
There are some big issues here. Given the fact that I know one or two insolvency practitioners, it would be a stretch to expect that group to be expanded in a short enough time to include people with experience. In the unlikely event that we have a rash of these insolvencies, experience will surely be increased and the problem will solve itself. But there is a gap here: No particular solutions come to mind, but the question will continue through our discussions today about how the expertise necessary to make some of those judgments will be gained.
Other amendments in this group, particularly Amendment 44, suggest that it may be necessary to make sure, in regulations if not in the Bill, that the person appointed as the education administrator has access without bar or hindrance—certainly no barrier should be put in place—to receiving the sort of advice that will be required to make the decisions that they will need to make in running an FE college. The proposal in Amendment 44 that the,
“education administrator may, in performing … functions … request information, advice or guidance from practitioners with an understanding of education”,
is meant in a permissive and encouraging way, rather than as a statutory duty. Nevertheless, the point is well made, and I look forward to hearing what the Minister says.
The meat of this group is in Amendments 42, 43 and 46A. That last amendment is a late addition, because I realised in preparing for the Committee that we could not get to the point without an additional amendment. I apologise for the late tabling of it. The scheme that we are talking about can come into existence only when the Secretary of State decides that it will do so, and only with the permission of the court, so there are already two steps in the process for a college that is going into insolvency, for which there will be checks, balances, discussions and debates, and some context will be provided. I am sure that that is an appropriate and effective way of going forward. But with the appointment of the education administrator comes the next stage in the process; that person will take over the responsibilities previously held by the owners of the operation and will have to deal day to day with the problems of running the college as they go forward.
I would be interested to know whether any work has been done for the Government on roughly what proportion of the insolvencies or liquidations it is expected will go into special administration as opposed to the normal routes, because the law already provides for companies that operate many activities, one of which would be education, to go insolvent or become bankrupt. There is a process under which that operates. We would not expect it to operate in many cases because it is a fairly brutal process.
4.15 pm
We, in your Lordships’ House, have discussed insolvency on a number of occasions in recent years. I think there have been three Bills in which the law has been moved forward. There are also three striking things. The UK is way apart from many other territories in which the primacy of the creditor stands against any other purposes. In other words, there is an underlying thinking behind any insolvency or bankruptcy. I am sorry if I sound as if I am lecturing; I should not be lecturing to a group as astute as your Lordships. It is interesting that there is an assumption behind the way in which we process an insolvency that the creditors will be paid back 100% of what they have lent. Of course, creditors come in all shapes and sizes. They range from those in bank lending through to those who have provided goods on credit and are waiting to get paid.
The working assumption is that creditors should always be repaid. I find this strange because, in a practical sense, in any insolvency or bankruptcy arrangement—whether personal or corporate—the creditors’ immediate assumption is that they are not going to get 100%. Yet, the law sets out to try to provide that 100%. The deal is usually brokered between 100% on one side and about 10%, which is usually the working estimate, certainly after taking away the substantial fees that are paid to insolvency practitioners. I will not make further comment about that. The amounts of money are relatively trivial.
I am not saying that this would necessarily be applied here but if we go down the routes of traditional corporate insolvency, voluntary arrangement or the other ways in which this can happen, we will find
the question of creditors looming large whether or not the body concerned is charitable. The rights and responsibilities of the person appointed to be the administrator of an ordinary commercial or personal bankruptcy or liquidation is, of course, charged with the responsibilities of a creditor.
Our Amendment 46A draws attention to this. I should be interested to hear further from the Minister on this point. Clearly, in a special administration, the idea is to restrain the creditors. That seems a good idea but credit comes with strings. If you restrict the ability of an institution to receive credit because the perception is that it may not be able to be pursued if it goes bankrupt, the flow of credit may well dry up. Will this not affect the way in which suppliers, the banks and others operate in relation to FE colleges? Even the smallest college will have a small amount of credit at any one time. The larger ones will almost certainly be raising funds openly on the market to do good things, approved by their governing bodies. However, it will depress their ability to raise funding—and possibly even make it difficult to get supplies—if this scheme becomes better known or happens more often, and if word gets out to people that should you supply goods or credit to an FE college, it would be dodgy if it goes down. There is an issue here.
The wider question is: how on earth are people to operate in a situation where the first steps taken towards bankruptcy will signal widely to all concerned that an institution is to be placed behind a wall? This may be for good public purposes and for the benefits which we have talked about, and with which we absolutely agree. But during the time that the educational administrator is operating under special measures, there will be no payment made to creditors. I am not against this. It is the right thing to do but I worry that the pressure will be on the person appointed as the educational administrator. This person will instinctively, and by training, have much more concern for creditors than others with more experience of FE who may take on this job, but who will be under great difficulty.
It must be right to make sure that the special measures which are to be part of the operation are documented in a way which gives them the best support and the greatest amount of encouragement. This amendment is to ensure that the special scheme has the teeth it needs to fight off the creditors, that the students at the FE college and the local community which benefits from it are not frightened off and that decisions are not reached in the wrong way. I beg to move.