Committee for Enterprise,
Trade and Investment

Tuesday 3 September 2002

MINUTES OF EVIDENCE

Insolvency Bill:
Committee Stage
(NIA 14/01)

Members present:

Mr Neeson (Deputy Chairperson)
Mr Armstrong
Mr Clyde
Ms Courtney
Mr McClarty
Dr McDonnell
Mr McMenamin
Mr Wells

Witnesses:

Mr M Bohill )
Mr R Nesbitt ) Department of Enterprise,
Ms J Broadway ) Trade and Investment
Mr J Reid )

The Deputy Chairperson: Good morning, everyone. I welcome Mr Mike Bohill, Mr Reg Nesbitt, Ms Julie Broadway and Mr Jack Reid from the Department. I thank you for your attendance and apologise for the delay. This meeting is in relation to clause 8 of the Insolvency Bill.

Mr Bohill: Mr Nesbitt will deal with the substantive issues, and we shall chip in where necessary.

Mr R Nesbitt: The Minister wrote to the Committee on 29 August regarding this matter, giving support to the policy decision to retain clause 8. The reason for the inclusion of clause 8 is that the two key policy-guiding principles underline general UK-wide insolvency law. In particular the guidelines of the specific legislation under which deceased insolvencies are administered are that the assets of someone who is insolvent should be made available to pay his or her debts, and that the interests of creditors are generally paramount.

The effect of the Court of Appeal judgement in the Crown v Palmer case was that a feature peculiar to joint tenancies, the passing of a person’s interest in property to the co-owners at the instant of their death, had become a cocoon, shielding such an interest in property from the normal operation of insolvency law. The interests of the surviving partner had come to override the interests of creditors, notwithstanding the possibility of their being well placed financially, compared with the creditors.

The Minister’s letter also gave reasons for the necessity to amend the present law. The number of deceased insolvencies is minuscule: from 1997 to the present there have been only three deceased insolvencies in Northern Ireland, and none of those involved a joint tenancy. The present exemption has arisen from a legal technicality peculiar to the form of joint tenancy. It runs counter to the overarching principle behind insolvency law; namely that there should be effective means to ensure that debtors pay their debts. Exemption is at variance with what happens in other insolvency proceedings — in bankruptcies, trustees can and do claim the debtor’s interest in jointly owned properties, including their dwelling houses, for creditors’ benefit, and they do so despite the disagreeable consequences for spouses and children.

Under the current law, something for which a creditor is not responsible and cannot be expected to foresee when allowing credit — such as a debtor’s death — can leave them worse off by denying them access to one of the deceased’s assets, such as any interest held in property owned under a joint tenancy.

Under current law, if a property is owned by a husband and wife under a form of title other than a joint tenancy and one of them dies, a trustee would be able to claim the deceased’s interest in the property for creditors. However, he would be barred from doing so if the property were owned under a joint tenancy.

Clause 8 will bring the law in Northern Ireland into line with that in Great Britain. To amend the clause on the grounds of its having a potentially unequal impact on women or widows would create a derogation in the rights of creditors in deceased insolvencies in Northern Ireland compared with their counterparts in Great Britain.

However, there is an important safeguard. Clause 8 does not give a trustee administering a deceased insolvency an automatic right to any interest that the deceased insolvent had in property held under a joint tenancy. Under paragraph (3) of the clause, the trustee would have to apply to the High Court for an order to require the survivor to make a payment representing the value of the deceased’s interest in the property. The court would have the final say on whether such an order should be made and it would be required to have regard to the interests of the survivor. The Department supports clause 8.

The Deputy Chairperson: The Minister’s letter states:

"However I do accept that the potential adverse consequences of Clause 8 are likely to fall more heavily on women/ widows."

That does not sit well with the statement contained in the explanatory and financial memorandum that no adverse impact has been identified for any group listed in section 75 of the Northern Ireland Act 1998. How do we deal with that issue?

Mr R Nesbitt: You must look at the whole insolvency scene. If clause 8 were amended, it would create a small area of law for a joint tenancy. In a normal bankruptcy case where there is a joint tenancy, the house is subject to possession and sale. If a bankruptcy order were made on someone who died nine months afterwards, that property, under the earlier bankruptcy order, would be subject to sale. It is only where the insolvency administration order is made after the date of death that a different result would apply, and that is only due to a technical decision made by the Court of Appeal in 1994. Before that, the law dealt equally across the board in all situations. This would go against what happened before 1994.

The Deputy Chairperson: Is that not contrary to the thrust of section 75 of the Northern Ireland Act 1998?

Mr R Nesbitt: No. It affects men and women equally. Bankruptcy law and the payment of creditors are the paramount considerations, so I do not fully accept the argument.

Mr Wells: Jane Morrice and I pursued this matter at length during the last meeting. We expressed surprise when you said that the legislation had been equality- proofed and received a clean bill of health. Did you check to see if that anomaly had been spotted? It is such a complex piece of legislation that it might not have been picked up even though it had been equality-proofed.

Mr R Nesbitt: The main thrust of the Bill was about a moratorium, and that was a minor aspect. Unfortunately it has hit the headlines through this Committee. However, the Equality Commission’s prime consideration concerns the main thrust of the Bill.

Mr Wells: Is Northern Ireland equality legislation stronger than that in the rest of the United Kingdom?

Mr R Nesbitt: Yes.

Mr Wells: So you are saying that, if we decide to seek an amendment, we should examine derogation from the legislation that pertains to the rest of the United Kingdom. Surely that is indictable if you have stronger equality legislation. There are bound to be instances — and more as time passes — where our equality situation is stronger than that in the rest of the UK. Would stronger legislation be a problem?

Mr R Nesbitt: The situation would not be any different if there were a stronger system in England and Wales. We are talking about bankruptcy law versus an equality matter. The requirement is not absolute. However, even from a human rights aspect, bankruptcy law still takes precedence in the law in Great Britain.

Mr Wells: Over equality?

Mr R Nesbitt: Yes.

Mr Wells: Insolvency, debt and suicide are often linked. The most obvious example is where someone cannot cope with their debts and has ended it all — something which has happened in my constituency. In a joint tenancy situation, it is inevitably the wife who has to cope. I should like to think that it is fifty-fifty, but the figures are about ninety-ten in favour of men when it comes to directorships at this level. If that happened, the widow, who has had the trauma of losing her husband, also has the trauma of having to sell her part of the asset to redeem the debt.

Mr R Nesbitt: The effect on creditors who are not paid is much the same. If they are put out of business and lose their homes as a result of going into bankruptcy because the deceased was insolvent and could not pay them, they might consider suicide. It applies on both sides, which is why it is a moot point.

Mrs Courtney: I hold the same view as Mr Wells. I was about to raise a point about suicide. Quite often, the wife is totally unaware of the scale of her husband’s debts until something like that happens, the result being that she is forced to sell her home and is left without a roof over her head. I understand what you are saying about creditors, but, at the same time, there are many women who — even in today’s climate where everything is supposed to be open — do not know the extent of their husbands’ debts or property. Only when something like that happens are they faced with the trauma.

Women are being discriminated against by this clause, and it should not be included in the Bill. I have every sympathy for creditors who find themselves facing bankruptcy but, more often than not, that happens when people are alive rather than dead. In instances where there has been a suicide or something like that, the same instance should apply whether the debtor is the husband or wife. It should not be discriminatory towards women, as this clause obviously would be.

Mr R Nesbitt: It cannot be said that it will be only women who are affected, for men can obviously be affected too.

Mrs Courtney: You gave statistics. As Mr Wells said, they prove what happened in the past. We have no reason to believe that in the future women will suddenly hit the top and become property owners and that their husbands will know very little about it. It does not happen like that.

Mr R Nesbitt: What about the wives or husbands of the creditors? They are put in the same position.

Mrs Courtney: I have sympathy for them.

Mr R Nesbitt: Yes, but it is not really any different. What happens if a wife gains from a large property that her husband has built on the backs of creditors and is handed a large sum of money? Why should that situation arise? It is grossly unfair.

The Deputy Chairperson: You can see that it is still a very contentious issue with the Committee. I draw members’ attention to a letter from the Equality Commission on the subject. We hope to formalise our report at our meeting next week. It is important that we consider what has been discussed today with reference to Hansard. We shall make up our minds on that basis and on the legal opinion that we have received.

Mr Nesbitt, have you further amendments to bring to the Committee’s attention?

Mr R Nesbitt: I shall give a résumé of the amendments to date and of the proposed amendment that the Minister has not yet approved.

Mr Bohill: Mr Nesbitt will address the amendments that we propose be adopted and which are subject to the Minister’s agreement.

Mr R Nesbitt: The Department of Trade and Industry discovered that it was essential to amend the Insolvency Act 2000 on which this Bill is based. As the Act is already law in Great Britain, there was no alternative except to amend it by subordinate legislation. The Insolvency Act 1986 (Amendment) (No. 3) Regulations 2002 were made as recently as 25 July, so the Department became aware of the amendments only a short time ago. The Office of the Legislative Counsel has agreed that the necessary corresponding amendments to the law in Northern Ireland be included in the Bill. That is why the Department decided to amend the Bill rather than create secondary legislation.

The first likely amendment will be to insert Schedule A1 into the Insolvency (Northern Ireland) Order 1989 through paragraph (5) of schedule 1 to the Bill. Schedule A1 deals with the optional moratorium that protects small companies attempting to enter a voluntary arrangement with their creditors from legal proceedings by the creditors. The amendments are designed to ensure that such a moratorium is not available to companies in cases where it would be inappropriate. A company will be ineligible for a moratorium if it is: a holding company of a large group of companies; a party to a capital market arrangement; a project company of a public-private partnership (PPP) project that includes step-in rights; or if it has incurred a liability under an agreement of £10 million or more. Those are the four main criteria, and definitions of the terms "capital market arrangement", "project company", "PPP" and "step-in rights" are given in the Insolvency Act 1986 (Amendment) (No. 3) Regulations 2002.

The amendments are purely technical and do not represent any fundamental change to the tenor of the Bill. The Minister has yet to be formally asked to table the amendments and inform the Committee in writing.

The Deputy Chairperson: Is it parity legislation?

Mr R Nesbitt: Yes.

Mr Wells: I presume that the amendment is to prevent any obvious abuse of that provision.

Mr R Nesbitt: That appears to be the policy decision taken by Westminster.

Mr Wells: Should we therefore expect the whole group of companies to bear liability for their holding company?

Mr R Nesbitt: Yes. Having brought the Order into effect, the Government had second thoughts about who should obtain a moratorium, and they introduced a piece of secondary legislation to cover that.

Mr Wells: What is the timetable for the amendments? Will they arise in the Consideration Stage?

Mr R Nesbitt: Yes.

The Deputy Chairperson: As there are no further questions, I thank you for attending the meeting.

29 July 2002 (part ii) / Menu / 3 September 2002 (part ii)