SESSION 2001/2002 |
SIXTH REPORT |
COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT
Report on the Insolvency Bill
(NIA Bill 14/01)
TOGETHER WITH THE MINUTES OF PROCEEDINGS OF THE COMMITTEE
RELATING TO THE REPORT AND THE MINUTES OF EVIDENCE
Ordered by The Committee for Enterprise, Trade and Investment to be printed 11 September 2002
Report: 6/01R (Committee for Enterprise, Trade and Investment)
COMMITTEE FOR ENTERPRISE, TRADE AND INVESTMENT:
MEMBERSHIP AND POWERS
The Committee for Enterprise, Trade and Investment is a Statutory Departmental Committee established in accordance with paragraphs 8 and 9 of Strand One of the Belfast Agreement and under Assembly Standing Order No 46. The Committee has a scrutiny, policy development and consultation role with respect to the Department of Enterprise, Trade and Investment and has a role in the initiation of legislation.
The Committee has power to:
- consider and advise on Departmental budgets and Annual Plans in the context of the overall budget allocation;
- approve relevant secondary legislation and take the Committee Stage of relevant primary legislation;
- call for person and papers;
- initiate enquiries and make reports;
- consider and advise on matters brought to the Committee by the Minister of Enterprise, Trade and Investment.
The Committee was established on 29 November 1999 with 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.
The membership of the Committee is as follows:
Mr Pat Doherty (Chairperson)
Mr Sean Neeson (Deputy Chairperson)
| Mr Billy Armstrong* Mr Wilson Clyde Mrs Annie Courtney* Mr David McClarty Mr Eugene McMenamin* |
Dr Alasdair McDonnell Ms Jane Morrice Dr Dara O'Hagan Mr Jim Wells* |
*Mr Wells replaced Mr Campbell with effect from 3 October 2000.
*Mrs Courtney replaced Ms Lewsley with effect from 29 January 2001.
*Mr Armstrong replaced Mr Shipley Dalton with effect from 24 October 2001.
*Mr McMenamin replaced Mr Attwood with effect from 18 February 2002.
The Report and Proceedings of the Committee are published by the Stationery Office by order of the Committee. All publications of the Committee are posted on the Northern Ireland Assembly website: archive.niassembly.gov.uk
All correspondence should be addressed to the Clerk to the Committee for Enterprise, Trade and Investment, Northern Ireland Assembly, Room 424, Parliament Buildings, Stormont, Belfast BT4 3XX.
Tel: (028) 9052 1230; Fax: (028) 9052 1063; e-mail: committee.enterprise@niassembly.gov.uk
CONTENTS
REPORT
Report on the Insolvency Bill
Appendicies
Appendix 1- Minutes of Proceedings of the Committee relating to the Report
Appendix 2- Minutes of Evidence
Appendix 3- Written Submissions
REPORT ON THE INSOLVENCY Bill
(NIA Bill 14/01)
GENERAL
Introduction
1. The Committee for Enterprise, Trade and Investment met on the dates given below to consider the Insolvency Bill. The Bill was referred to the Committee for consideration in accordance with Standing Order 31(1) of the Northern Ireland Assembly after completing its Second Stage on 18 June 2002.
2. The Committee had before it the Insolvency Bill and the Explanatory and Financial Memorandum to the Bill (NIA Bill 14/01) as introduced.
3. The Minister of Enterprise, Trade and Investment made the following statement under section 9 of the Northern Ireland Act 1998:
"In my view the Insolvency Bill would be within the legislative competence of the Northern Ireland Assembly".
Purpose of the Bill
4. The prime purpose of the Bill is to make available to small companies attempting to enter a voluntary arrangement with their creditors the option of a short moratorium during which they will be protected from legal proceedings, including proceedings for winding-up. This will provide such companies with the enhanced opportunity to put together a rescue package.
5. The Bill will include a range of other measures. It will:
- Make an interim order (moratorium) optional in the case of an individual attempting to enter a voluntary arrangement with his creditors.
- Provide for the department to recognise bodies to authorise persons to act as nominees or supervisors in company or individual voluntary arrangements not being persons who are currently licensed to act as insolvency practitioners.
- Restrict the rights of landlords to effect peaceable re-entry where an administration order has been applied for or made.
- Amend Articles 182,183 and 365 of the Insolvency (Northern Ireland) Order 1989.
- Create power to make regulations to give effect with or without modifications to the model law on cross-border insolvency which was adopted by the United Nations Commission on International Trade Law of which the UK is a member state.
Meetings Held
6. The Committee met to consider the Bill on the following dates:
- 29 July 2002: clause-by-clause scrutiny of the Bill, Departmental Officials in attendance.
- 3 September 2002: to consider responses to concerns raised in relation to clause 8 of the bill. The Committee also considered and agreed amendments the Department proposes to put forward at Consideration Stage of the Bill. Departmental Officials were in attendance.
- 11 September 2002: to consider further the responses to concerns raised to clause 8 of the bill and agree the draft report.
Evidence
7. The Minutes of Evidence for the meeting when the Bill was considered formally is given in Appendix 2.
8. The Committee wrote to 7 interested bodies on 22 April 2002 to seek their comments on the proposed Bill. Responses were received from the Institute of Chartered Accountants in Ireland and from a Mr Brian Bell. The submission from the Institute is attached to this report at Appendix 3. The institute welcomed the provisions contained in the Bill as they represented conformity with legislation in the rest of the United Kingdom.
9. The issues raised by Mr Bell in his submission were considered to be outside the scope of the Bill and thus, is not included in this report. However, the Clerk can provide a copy on request.
Deliberations of the Committee
10. The Committee gave detailed consideration to each part of the Insolvency Bill over 3 meetings. The record of the Committee's deliberations can be found in Appendix 1 - Minutes of Proceedings and Appendix 2 - Minutes of Evidence.
11. The Committee carried out a clause-by-clause scrutiny on 29 July 2002 when a number of concerns were raised. The Department and the Equality Commission for Northern Ireland were asked to comment on these concerns. The Committee met on 3&11 September 2002 to consider the replies received, copies of replies at Appendix 3. The Bill was formally agreed on 11 September 2002.
12. The Committee considers that the provisions of the Bill, as introduced, are necessary to make available to small companies attempting to enter a voluntary arrangement with their creditors the option of a short moratorium during which they will be protected from legal proceedings, including proceedings for winding-up.
13. The Committee considers that clause 8 of the Insolvency Bill should be amended at consideration stage in order to prevent potential inequality for surviving widows, where a joint tenancy pertains.
PAT DOHERTY MP MLA
Chairperson
APPENDIX 1
PROCEEDINGS OF THE COMMITTEE
RELATING TO THE REPORT
MONDAY 29 JULY 2002 AT 10.42 AM IN
ROOM 144, PARLIAMENT BUILDINGS
Present: Mr P Doherty MP (Chairperson)
Mr S Neeson (Deputy Chairperson)
Mr B Armstrong
Mr W Clyde
Dr A McDonnell
Mr D McClarty
Ms J Morrice
Mr J Wells
Apologies: Mrs A Courtney
Mr E McMenamin
Dr D O'Hagan
In attendance: Mrs C White (Committee Clerk)
Mr M Anderson (Assistant Committee Clerk)
Mr R Anderson (Clerical Supervisor)
Miss A Fowler (Clerical Officer)
Mr H Widdis (Assembly Legal Adviser)
In attendance for the public evidence session at 10.47 am: Mr M Bohill, Mr J Reid, Mr R Nesbitt, Ms J Broadway (Department of Enterprise, Trade and Investment).
2. Insolvency Bill
2.1 Departmental Officials discussed the background of the Bill.
Mr Clyde joined the meeting at 10.55am.
Agreed - to include the Minister's letter of 21 July in the Report.
Dr McDonnell joined the meeting at 11.15am.
2.2. The Committee carried out a detailed clause-by-clause scrutiny of the Insolvency Bill. The clauses were read along with the related commentary in the Explanatory and Financial Memorandum.
The Long Title was considered.
Agreed - that the Committee is content with the long title as drafted.
Clause 1 was considered.
Mr Neeson joined the meeting at 11.23am.Mr Clyde left the meeting at 11.24am.
Mr McClarty left the meeting at 11.24am.
Agreed - that the Committee is content with the clause 1 as drafted.
Schedule 1 was considered.
Agreed - that the Committee is content with the Schedule 1 as drafted.
Clause 2 was considered.
Agreed - that the Committee is content with the clause 2 as drafted.
Schedule 2 was considered.
Agreed - that the Committee is content with the Schedule 2 as drafted.
Clause 3 was considered.
Mr McClarty rejoined the meeting at 11.35am.
Agreed - that the Committee is content with the clause 3 as drafted.
Schedule 3 was considered.
Agreed - that the Committee is content with the Schedule 3 as drafted.
Clause 4 was considered.
Agreed - that the Committee is content with the clause 4 as drafted.
Clause 5 was considered.
Agreed - that the Committee is content with the clause 5 as drafted.
Clause 6 was considered.
Agreed - that the Committee is content with the clause 6 as drafted.
Clause 7 was considered.
Agreed - that the Committee is content with the clause 7 as drafted.
Clause 8 was considered.
Agreed - to seek further clarification from the Department and the views of the Equality Commission regarding Clause 8.
Clause 9 was considered.
Agreed - that the Committee is content with the clause 9 as drafted.
Clause 10 was considered.
Agreed - that the Committee is content with the clause 10 as drafted.
Clause 11 was considered.
Agreed - that the Committee is content with the clause 11 as drafted.
Clause 12 was considered.
Agreed - that the Committee is content with the clause 12 as drafted.
Schedule 4 was considered.
Agreed - that the Committee is content with the Schedule 4 as drafted.
Clause 13 was considered.
Agreed - that the Committee is content with the clause 13 as drafted.
Clause 14 was considered.
Agreed - that the Committee is content with the clause 14 as drafted.
[EXTRACT]
TUESDAY 3 SEPTEMBER 2002 AT 10.33AM IN
THE SENATE CHAMBER, Parliament Buildings
Present: Mr S Neeson (Deputy Chairperson)
Mr B Armstrong
Mr W Clyde
Mrs A Courtney
Mr D McClarty
Dr A McDonnell
Mr E McMenamin
Ms J Morrice
Mr J Wells
Apologies: Mr P Doherty MP (Chairperson)
In attendance: Mrs C White (Committee Clerk)
Mr M Anderson (Assistant Committee Clerk)
Mr R Anderson (Clerical Supervisor)
Mrs J Murdoch (Clerical Supervisor)
Miss A Fowler (Clerical Officer)
In attendance for the public evidence session at 10.50am: Mr M Bohill, Mr J Reid, Mr R Nesbitt, Ms J Broadway.
The Committee agreed to open the meeting in public at 10.33am.
Mr Neeson assumed the Chair in the absence of the Chairperson.
3. Insolvency Bill
3.1 Departmental Officials gave evidence relating to Clause 8 of the Insolvency Bill and outlined further amendments to Schedule 1 of the Bill.
Dr McDonnell left the meeting at 11.00am.
Agreed - to continue deliberations on the Insolvency Bill at next weeks meeting.
[EXTRACT]
WEDNESDAY 11 SEPTEMBER 2002 AT 10.35AM IN
ROOM 144, Parliament Buildings
Present: Mr S Neeson (Deputy Chairperson)
Mr W Clyde
Dr A McDonnell
Ms J Morrice
Dr D O'Hagan
Mr J Wells
Apologies: Mr B Armstrong
Mrs A Courtney
Mr P Doherty MP (Chairperson)
Mr D McClarty
Mr E McMenamin
In attendance: Mr M Rickard (Committee Clerk)
Mr G Thompson (Assembly Clerk)
Mr M Anderson (Assistant Committee Clerk)
Mr R Anderson (Clerical Supervisor)
Mrs J Murdoch (Clerical Supervisor)
Miss A Fowler (Clerical Officer)
Dr P Gilleece (Assembly Research)
2. Insolvency Bill
2.1 The Committee continued to deliberate on clause 8 of the Bill.
Agreed - to recommend to the Assembly that the clause be amended.
Agreed - that the Assembly Clerk from the Bill Office would draft a possible amendment for consideration at next weeks meeting.
Agreed - to seek a briefing paper on the rights of persons in long-term relationships under existing property legislation.
The Committee considered correspondence from the Minister outlining proposed amendments to the Bill at Consideration Stage.
Agreed - to note the amendments.
The Committee discussed the draft Insolvency Report.
Agreed - the content of the report and ordered it to be printed.
[EXTRACT]
APPENDIX 2
MINUTES OF EVIDENCE
Monday 29 July 2002
Members present:
Mr P Doherty (Chairperson)
Mr Neeson (Deputy Chairperson)
Mr Armstrong
Mr McClarty
Dr McDonnell
Ms Morrice
Mr Wells
Witnesses:
Mr Mike Bohill ) Department of Enterprise, Trade and Investment
Ms Julie Broadway )
Mr Reg Nesbitt )
Mr Jack Reid )
Mr Hugh Widdis ) Assembly Legal Adviser
1.
The Chairperson: You are very welcome. Some of us know each other very well, but this may the first meeting for others. After you give the Committee your views about the Bill, members may ask some questions.
2.
Mr Bohill: Mr Reg Nesbitt, who is the Department's director of insolvency, will discuss both Bills, and the rest of our team shall support him.
3.
Mr Nesbitt: The Insolvency Bill, which is now at Committee Stage, relates largely to the moratorium that has been made available to companies in financial difficulties that wish to avail of a company voluntary arrangement. The best way to discuss the Bill is to compare the current law to the changes that we expect as a result of the Bill.
4.
At present, directors of a company that is in financial difficulties can call a meeting of its creditors to vote on whether to accept a compromise offer to pay part or all of its debts over time. A vote in favour of that option binds only those creditors who received notice of the meeting. That is an important part of current legislation.
5.
Under the new law, small companies attempting to enter a voluntary arrangement will have the option of a 28-day moratorium, which can be extended by up to two months through a meeting of the company and its creditors. A moratorium will temporarily insulate the company from creditors' pressure to give the directors the opportunity to frame a proposal and call a meeting of creditors.
6.
Those two descriptions show the distinct difference between the two procedures. The ethos of the Bill is to save any companies that are salvageable. A major weakness of the current law is that protection is not available. Fixed charge-holders, in particular, can appoint their administrative receiver and therefore thwart the potential to save the company. In a nutshell, that is the aim of the Bill. There are several other minor points on which I will recap if the Committee so wishes.
7.
The Chairperson: Please do so, briefly.
8.
Mr Nesbitt: Under the present system, an individual obtains protection as a result of the interim order procedure; however, there is no option not to use that procedure. The Bill makes it possible to take out an individual voluntary arrangement without having to obtain an interim order. A landlord who is owed rent would not be able to enter and foreclose premises to obtain payment. In keeping with the European Convention on Human Rights it would no longer be possible for answers obtained under compulsion to be used in any criminal action against an individual.
9.
Liquidators' reports on suspected criminal offences would be made directly to the Department, instead of to the Director of Public Prosecutions. The law would be amended to make available to creditors deceased insolvents' shares in property that is held under joint tenancy. The Department would acquire the powers to make Regulations to give effect to the model law on cross-border insolvency adopted by the United Nations Commission on International Trade Law.
10.
Those are minor but important parts of the Bill. The major feature is the moratorium for small companies, of which there are some 20,000, or 95% of companies in Northern Ireland. It may, therefore, be a useful procedure for them to adopt should they get into financial difficulties.
11.
Mr Wells: That procedure is similar to the American practice of suing for protection. When companies such as Enron, which are cooking the books, get into trouble they file for protection and are given 30 days during which no meeting can be called. Is the proposed procedure similar to that?
12.
Mr Nesbitt: The two procedures are different, because protection can continue for quite a long time. In this case the company has 28 days in which to decide on a procedure that is acceptable to creditors. If the creditors do not accept it, it fails.
13.
Mr Wells: Is there a loophole that would allow a dishonest director to salt away assets and revenues to an offshore account during those 28 days, or to use the opportunity to get rid of as much money as possible to prevent its distribution among creditors?
14.
Mr Nesbitt: That would be virtually impossible; the Bill would prevent that. Anyone found out would be in serious trouble.
15.
Mr Wells: Is there any evidence to suggest that, had the stay of execution already been available, some companies could have resolved their difficulties with their creditors and avoided going under?
16.
Mr Nesbitt: Only six company voluntary arrangements were made last year. The Department does not know what the rate of uptake for the provision will be. I suspect that it will not be high, but we must wait and see. There are no substantive figures relating to its operation in England and Wales that would allow me to give an objective answer.
17.
Mr Wells: Is it the case that no one can compel a company to make a voluntary arrangement and that it is entirely voluntary?
18.
Mr Nesbitt: Yes.
19.
Ms Morrice: The Committee received detailed questions from the Institute of Chartered Accountants in Ireland. In its letter, under the heading
"Company Voluntary Arrangements (CVAs) - Status of moratorium period creditors",
the institute states:
"It is not clear to us whether this means simply that all creditors who are owed money at the start of the moratorium are bound (for whatever their debt is at the date of approval), or whether it means that creditors are bound for the amount owed to them at the start of the moratorium."
20.
Mr Nesbitt: The Department became aware of that matter only 10 days ago. The institute has confused slightly the binding of creditors and the approving of them. It means simply that all creditors are bound to the moratorium and any subsequent voluntary arrangement. The Bill does not provide that the creditors' claim to be included in the arrangement be in place at the date of the moratorium. Creditors' claims will be taken at the date on which they agree the proposal.
21
.Ms Morrice: Has the Department already responded to the institute's question, or is this your response?
22.
Mr Nesbitt: This is my response.
23
.Ms Morrice: Do you think that your answer will clarify the matter for the Institute of Chartered Accountants?
24.
Mr Nesbitt: I expect so, although the matter is subject to rules. This detail does not form part of the Bill.
25.
Ms Morrice: The institute states that
"the problem arises of the status of any debts arising between the two dates."
26.
Mr Nesbitt: The institute quotes the Kenneth George Hoare case in which the court decided that the VAT incurred until the date of the creditors' meeting would form part of their normal claim. Therefore, the amount of the claim on the date of the creditors' meeting will be accepted.
27.
Ms Morrice: The institute concludes that
"providing that preferential claims are to be calculated at the date of the arrangement taking effect would avoid this problem."
28.
Mr Nesbitt: In its letter, the institute also states:
"We note that the relevant date for calculation of preferential claims is the date of filing of the documents in court".
29.
I am not sure where the institute received that information.
30.
The difference between preferential claims calculated on the date of the moratorium and all other claims commencing on the date of the creditors' meeting would cause confusion. For example, an Inland Revenue claim could involve preferential debts calculated from the moratorium date and unsecured ones calculated from the date of the creditors' meeting.
31.
Ms Morrice: I have heard that divorcees who owe money to their ex-spouses - alimony, if you like - can declare themselves bankrupt to avoid payment. Does the Bill prevent that scenario?
32.
Mr Nesbitt: We are discussing company voluntary arrangements, whereas your example relates to individuals.
33.
Ms Morrice: I am referring to cases where an individual who is declared bankrupt no longer has to pay debts to a spouse.
34.
Mr Nesbitt: Such a debt could not result in a bankruptcy order. I do not believe that an alimony debt could form the basis of a petition for a bankruptcy order.
35.
Ms Morrice: In other words, the money does not have to be paid if the individual is bankrupt.
36.
Mr Nesbitt: In such a family situation there would be a requirement to continue to pay.
37.
Mr Bohill: Such a debt would not trigger bankruptcy.
38
.Mr Nesbitt: I do not think so, but I would need to check that. We have not come up against such a situation. A motoring fine is not a debt that can be used for a petition for a bankruptcy order. It cannot be claimed from the bankrupt's estate.
39.
Mr Bohill: There are two points to be made. The Bill relates to company voluntary agreements; therefore, personal bankruptcy matters are outside the scope of the Bill. Mr Nesbitt is saying that in his experience as the Department's Director of Insolvency, he has not come across a case where such a debt triggered a personal bankruptcy order.
40
.Ms Morrice: The debt would have to be very large.
41.
Mr Armstrong: What is your view on the institute's comments on the binding of unknown creditors that
"under current legislation only those creditors who have received notice of the meeting are bound. This change raises a number of potential difficulties, but the one which we feel is most readily susceptible to correction by amendment to the Bill is the effect of these provisions on those with claims under the Third Parties (Rights Against Insurers) Act 1930. We agree in principle that unknown creditors should be bound by an arrangement."
42.
Mr Nesbitt: When we did our homework on the institute's letter, we found that many of its points were drawn from the amendments tabled in the House of Lords, which were defeated. As regards this point, there is a remedy: if an application is made to the court under article 236, the person being bound by the voluntary arrangement can be relieved of that and will not lose out.
43.
Normally, if a company employee suffers an injury, the company pays out from its insurance policy. However, if someone is injured and the company goes into insolvency, and an insurance claim is made by the company, the moneys, if not claimed by the individual, become a general part of the assets of the company and are distributed to everybody. However, if a claimant goes into court under a company voluntary arrangement and - which he can do in other insolvency situations such as liquidation - objects to being prejudiced, he can, on the court's approval, approach the insurance company directly and get the moneys paid to him personally.
44.
Mr Reid: Common law protection exists already in the form of article 236 of the Insolvency (Northern Ireland) Order 1989. Ultimately, if a person's rights against the insurer are not protected he can apply to the court and have the original decision overturned.
45.
Mr Nesbitt: To quote from a House of Lords speech,
"We understand the concerns which lie behind these amendments but we do not consider that they are necessary. In our view - and there is case law which supports this - creditors who are able to make a claim under the Third Party (Rights Against Insurers) Act 1930 and who find themselves bound by a voluntary arrangement should be able to seek relief from a court on the grounds of unfair prejudice under either paragraph 36 of Schedule A1 of the Bill or sections 6 or 262 of the Insolvency Act 1986 as appropriate."
46.
That amendment was defeated in the House of Lords. The Bielecki case was mentioned in the institute's letter, but it was not quoted in full - the extract was therefore somewhat selective.
47.
Mr McClarty: In the best traditions of courtroom drama, I have no further questions.
48.
The Chairperson: Mr Widdis, would you like to comment, or are you happy with the statements?
49.
Mr Widdis: I am happy with them. I followed the explanation and I could repeat it, but I would not be adding anything to it.
50.
Mr Armstrong: I have no further questions.
51.
The Chairperson: Before we go through the Bill clause by clause, I will state for the record that the Minister has notified the Committee that he may make technical amendments to it.
52.
Ms Morrice: Does the Bill constitute parity legislation? How does it compare with other legislation in the UK and in the South?
53.
Mr Nesbitt: It establishes parity with the UK, but I am not clear about the position in the Republic.
54.
Ms Morrice: Is it simply an extension of the UK legislation without changes?
55.
Mr Nesbitt: Yes.
56.
The Chairperson: The Committee will include the Minister's letter in the minutes of the session and that will avoid my having to read it aloud. The letter is dated 21 July and is included in section E of the members' packs. According to the Minister's letter, the two amendments are technical, as opposed to substantive, in nature. Do any Committee members wish to express views on it?
57.
Ms Morrice: It would be interesting to know exactly what the amendments are and whether they differ from the UK legislation. Will they give us different legislation? Are there different circumstances here?
58.
Mr Nesbitt: No, it is entirely the same as GB's. Part 2 of that amendment is an exact replica of the corresponding provision of the Insolvency Act 2000.
59.
Ms Morrice: The amendments being introduced by the Minister have therefore been introduced by the Minister in England?
60.
Mr Nesbitt: Yes.
61.
Mr Bohill: The original Bill was based on that which was introduced in GB. These two particularly important amendments were made during the passage of the Bill in Westminster. We are, therefore, incorporating them into our Bill so that parity is maintained.
62.
Ms Morrice: To what to those amendments pertain? What are they about?
63.
Mr Bohill: The amendments are technical and quite complicated. They are summarised in the Minister's letter, and when he submits them it will be seen how technical they are. They are not substantial.
64.
Mr Nesbitt: To answer your original question, the Office of Legislative Counsel (OLC) had drawn up the Bill differently, only to find that a certain matter had been omitted. We therefore had to adopt the complete English version. It is convoluted, and even I find difficulty in understanding it. Paragraph 20(a), which has been inserted into the Insolvency Act, says that reports by liquidators, supervisors and so on must be made to the Department. Part 2 amends the Building Societies Act, and there was no provision in 20(a) to allow those reports to be sent to the Financial Services Authority (FSA). An amendment had to be made for that provision.
65.
Ms Morrice: Does that relate only to building societies?
66.
Mr Nesbitt: Yes.
67.
Ms Morrice: They had, therefore, been left out of it?
68.
Mr Nesbitt: The reporting provisions had been left out.
69.
Ms Morrice: And this is to ensure better reporting provisions for building societies?
70.
Mr Nesbitt: Yes.
71.
The Chairperson: We will now deal with the Bill itself; all Members have a copy of it. The purpose of this meeting is to carry out a detailed, clause-by-clause scrutiny of the Bill. Members will have the opportunity to raise any concerns or suggest any amendments. Members should read the relevant clauses and paragraphs in the Bill, along with the related commentary in the memorandum. This Bill has 14 clauses and four schedules. Each clause, and any subsections, must be considered in turn. The Committee will have two options: to agree that it is content with the clauses as drafted, or to agree that it recommends to the Assembly that a clause be amended.
72.
The purpose of the Bill is to make available to small companies attempting to enter a voluntary arrangement with their creditors the option of a short moratorium during which they will be protected from legal proceedings, including proceedings for winding-up. This will provide such companies the opportunity to put together a rescue package.
73.
The Bill also includes a range of other measures including: making an interim order - a moratorium - optional in the case of an individual attempting to enter a voluntary arrangement with his creditors; providing for the Department to recognise bodies to authorise persons to act as nominees or supervisors in company or individual voluntary arrangements not being persons who are currently licensed to act as insolvency practitioners; restricting the right of landlords to effect peaceable re-entry where an administration order as been applied for or made; amending article 182 of the Insolvency (Northern Ireland) Order 1989 to provide for allegations of criminal misconduct in connection with company liquidations to be made directly to the Department rather than through the director of public prosecutions; amending article 183 to ensure that it is compatible with the European Convention on Human Rights; amending article 365 so that the value of a deceased insolvent's interests in jointly owned property will be recoverable for the benefit of the insolvent estate; to create power to make Regulations to give effect with or without modifications to the model law on cross-border insolvency which was adopted by the United Nations Commission on International Trade Law (UNCITRAL) of which the UK is a member state.
74.
The Long Title of the Bill is "A Bill to amend the law about insolvency; and for connected purposes".
75.
Question, That the Committee is content with the Long Title, put and agreed to.
Clause 1 (Moratorium where directors propose voluntary arrangement)
76.Clause 1 is explained on page 1 of the Bill and page 5 of the explanatory and financial memorandum. The clause introduces schedule 1 to the Bill, which makes the option of applying for a short moratorium available to an eligible company where its directors intend to put a proposal to the company and its creditors for a company voluntary arrangement.
77.
Dr McDonnell: Who determines the length of the voluntary arrangement?
78.
Mr Nesbitt: The nominee, but it would depend on the circumstances. If the nominee is happy he will put his proposals in court and the moratorium will commence. He might then have to negotiate with a few parties and the length of the voluntary arrangement may or may not be accepted by the committee of creditors. They will probably determine which way it goes and how long it will be. The Bill states that the moratorium is for 28 days, with extensions for a further two months.
79.
The Chairperson: Schedule 1 - moratorium where directors propose voluntary arrangement - is explained on pages eight to 36 of the Bill and pages eight to 16 in the explanatory and financial memorandum. Paragraphs 1, 3, 4 and 5 amend the Insolvency (Northern Ireland) Order 1989 so that the directors of eligible companies may apply for a short moratorium for their company during which a proposal for a company voluntary arrangement can be put to its creditors.
80.
Paragraph 2 adds Regulations made under paragraph 5 of the schedule A1 to those Regulations which can be made under the Insolvency (Northern Ireland) Order 1989 which must be laid and approved by the Assembly.
81.
Paragraph 1, schedule A1, defines some of the terms that are used in schedule A1. Paragraphs 2 to 4, schedule A1 set out which companies are eligible for a moratorium. The Minister proposes to table an amendment to paragraph 2 of schedule A1 at Consideration Stage. The details are outlined in the Minister's letter of 21 July. Paragraph 5, schedule A1 allows the Department, by Regulations, to amend the eligibility criteria. Paragraph 6, schedule A1 places a duty upon the directors seeking a moratorium to provide information to the nominee. Paragraph 7, schedule A1 sets out the documents that the directors must file at the High Court to obtain a moratorium. The list of documents may be amended by Regulations.
82.
Paragraph 8, schedule A1 sets out the duration of a moratorium and provides that a moratorium come into force when the documents required to be submitted to the High Court are filed. Paragraph 9, schedule A1 places a duty on the directors of the company to notify the nominee that a moratorium has come into force. Paragraphs 10 to 11, schedule A1, require the nominee to advertise when a moratorium comes into force and when it ends and also notify the registrar and the company. In the case of a moratorium coming into force, he must also notify any creditor who has petitioned for the winding up of the company and, where it ends, any creditor of whose claim he is aware.
83.
Paragraph 12, schedule A1, deals with the effects of a moratorium upon parties other than the company during the period for which a moratorium is in force. Paragraph 13, schedule A1, prevents a floating charge from crystallising, or restrictions from being imposed on the disposal of any of the company's property while the moratorium is in force. Paragraph 14, schedule A1 states that security given over a company's assets during the moratorium will be unenforceable unless there were reasonable grounds, at the time it was granted, for believing that it would benefit the company.
84.
Paragraph 15, schedule A1, outlines the effect on the company. Paragraphs 16 to 22 apply in relation to a company that is subject to a moratorium. The fact that a company enters into a transaction in contravention to paragraphs 16 to 21 does not make that transaction void or unenforceable against the company. Paragraph 16, schedule A1 sets out that all invoices, orders and letters, on which the name of the company appears, must also state the name of the nominee and refer to the fact that a moratorium is in force. Any breach of this provision constitutes an offence.
85.
Paragraph 17, schedule A1, advises that during the moratorium a company may not obtain credit to the value of £250 or more without first telling the person who is giving the credit that a moratorium is in force. A breach of this provision constitutes an offence. Paragraphs 18 and 19, schedule A1, state that during the moratorium the company may only dispose of any of its property or make any payment of a debt which existed at the start of the moratorium if there are reasonable grounds for believing that the disposal or payment will benefit the company, and it is approved by the moratorium committee or by the nominee.
86.
Paragraph 20 and 21, schedule A1, permit the disposal during the moratorium, by the company, by sale or otherwise of charged property and any goods that are in the possession of the company under a hire-purchase agreement if the High Court or the holder of the security or owner concerned agrees.
87.
Paragraph 22, schedule A1, states that when a moratorium is in force a company commits an offence if it enters into a market contract, grants a market charge or system-charge, gives a transfer order or provides any collateral security. Any officer of the company who authorises or permits the company to enter into such a transaction also commits an offence.
88.
Paragraph 23, schedule A1, imposes a duty on the nominee to monitor the company's affairs during the moratorium in order to form an opinion as to whether the proposed voluntary arrangement, or that arrangement with any modifications of which he has been notified, has a reasonable prospect of being approved and implemented, and whether the company is likely to have sufficient funds to enable it to continue its business throughout the moratorium.
89.
Paragraph 24, schedule A1, sets out the arrangements whereby a nominee must withdraw his consent to act during the moratorium and states that the moratorium comes to an end if the nominee withdraws his consent to act.
90
.Paragraph 25, schedule A1, provides that the High Court, on the application of any creditor, director or member of the company, or any other person affected by a moratorium who is dissatisfied by any decision or act of the nominee, may confirm, reverse or modify that decision or act and give directions to the nominee or make any order that it sees fit, either during or after the moratorium.
91.
Paragraph 26, schedule A1, sets out the course of action that creditors may take if there are reasonable grounds for believing that the company has suffered a loss as a consequence of any act, omission or decision of the nominee, but the company does not propose to take any action.
92.
Paragraph 27, schedule A1, provides that in certain circumstances the High Court may direct that the nominee be replaced by another person with the necessary qualification.
93.
Paragraphs 28 and 29, schedule A1, provide for the summoning, conduct and reporting to the High Court of the outcome of such meetings of the creditors and the company as the nominee calls.
94.
Paragraph 30, schedule A1, provides that the meetings summoned under paragraph 28 shall decide whether or not to approve the proposed voluntary arrangements.
95.
Paragraphs 31 to 33, schedule A1, permit the initial period of the moratorium to be extended for a maximum period of up to two months, provided that certain conditions are satisfied.
96.
Paragraph 34, schedule A1, makes provision where a moratorium is extended for a moratorium committee to be set up to exercise the functions conferred on it by the meetings held under paragraph 28, where those meetings have approved an estimate of the expenses to be incurred in carrying out the committee's functions.
97.
Paragraph 35, schedule A1, determines when decisions made under paragraphs 30, 31, or 34 are to take effect. It also provides that, in the case of conflict, the decision of the creditors' meeting is to prevail, subject to the right of any member to apply to the High Court for an order that the decision of the company meeting should prevail instead.
98.
Paragraph 36, schedule A1, provides that a decision approving a company voluntary arrangement binds all creditors of the company owed money at the start of the moratorium including unknown creditors.
99.
Paragraph 37, schedule A1, provides, by way of application to the High Court, for the decision approving a company voluntary arrangement to be challenged on the ground that it unfairly prejudices the interests of a specific person or that there has been some material irregularity in the conduct of a meeting held under paragraph 28.
100.
Paragraph 38, schedule A1, provides for the implementation of an agreed company voluntary arrangement, and for the person who is carrying out the functions of the nominee to become the supervisor of the voluntary arrangement.
101.
Paragraph 39, schedule A1, provides that any creditor or member of the company can apply to the High Court if he considers that the company's affairs have been, or are being, managed in a way that is unfairly prejudicial to the interests of creditors or members, or that an actual or proposed act or omission of the directors is, or would be, so prejudicial. The paragraph applies only in relation to directors' acts or omissions during the moratorium.
102.
Paragraph 40, schedule A1, provides that any person who was an officer of the company who did certain acts in the 12 months prior to the start of the moratorium is to be treated as having committed an offence. For example, that applies if the officer has fraudulently removed company property worth £500 or more or if he destroys or falsifies the company's records in relation to its property in that period. Any person who is an officer of the company during the moratorium who does the same thing also commits an offence. The paragraph also provides defences that may be raised in relation to these offences.
103.
Paragraph 41, schedule A1, provides that it is an offence for an officer of a company to seek to obtain a moratorium, or an extension to it, by making a false representation or fraudulently doing, or failing to do, anything.
104.
Paragraph 42, schedule A1, provides that any provision in a floating charge is invalid if it provides for the obtaining of, or any action to obtain, a moratorium, to be an event causing the charge to crystallise or restrictions to be imposed on the disposal of property or a ground for the appointment of a receiver.
105.
Paragraph 43, schedule A1, gives the Financial Services Authority the right to participate in the moratorium procedure if the company is, or has been, regulated by the authority.
106.
Paragraphs 6 to 12 make consequential amendments to various parts of the Insolvency (Northern Ireland) Order 1989. For example, the amendments to article 197 will not permit suppliers of gas, water and electricity to require a nominee to pay outstanding debts for supply as a condition of supply during the moratorium. The amendment to article 347 provides that the relevant date for determining preferential claims is the date on which the moratorium comes into force. A new article, 362(1), is added to create the power to increase or reduce monetary sums specified in schedule A1. That will take account of the addition of the new company voluntary arrangement moratorium.
107.
Question, That the Committee is content with the clause and schedule, put and agreed to.
Clause 2 (Company voluntary arrangements)
108.
Information can be found on page 1 of the Bill and page 5 of the explanatory and financial memorandum. This clause introduces schedule 2 to the Bill. The schedule makes various amendments to the existing company voluntary arrangement procedure.
109.
Question, That the Committee is content with the clause and schedule, put and agreed to.
Clause 3 (Individual voluntary arrangements)
110.
Members should refer to page 1 of the Bill and page 5 of the explanatory and financial memorandum. This clause introduces schedule 3 to the Bill, which makes various amendments to the existing individual voluntary arrangement procedure.
111.
Schedule 3, which refers to individual voluntary arrangements, is outlined in pages 41 to 46 of the Bill and page 17 of the explanatory and financial memorandum.
112.
Question, That the Committee is content with the clause and schedule, put and agreed to.
Clause 4 (qualification or authorisation of nominees and supervisors)
113.
This clause is outlined on page three of the Bill and page five of the explanatory and financial memorandum. It amends article 3 of the Insolvency (Northern Ireland) Order 1989, which deals with acting as an insolvency practitioner. It also inserts a new article 348A dealing with the arrangements for the authorisation of nominees and supervisors.
114.
Question, That the Committee is content with the clause, put and agreed to.
Clause 5 (Administration orders)
115.
This clause is outlined on page three of the Bill and page 6 of the explanatory and financial memorandum. It amends articles 23 and 24 of the Insolvency (Northern Ireland) Order 1989 and provides that a landlord or other person to whom rent is payable may not exercise the right of forfeiture of the lease of a company's premises by means of peaceful re-entry where a company has applied for, or is subject to, an administration order, except with leave of the High Court.
116.
Question, That the Committee is content with the clause, put and agreed to.
Clause 6 (Investigation and prosecution of malpractice)
117.
This clause is outlined on page six of the Bill and page five of the explanatory and financial memorandum. It amends article 182 of the Insolvency (Northern Ireland) Order 1989 and provides that, in a winding up by the High Court, the court may direct the liquidator to report apparent criminal misconduct by past or present company officers or members of the company to the Department rather than to the Director of Public Prosecutions. The clause also requires a liquidator in a voluntary winding up to report suspicions of criminal misconduct by company officers past or present or members to the Department rather than to the Director of Public Prosecutions. It also provides that, when investigating the alleged misconduct, the Department may exercise powers under the Companies (Northern Ireland) Order 1986.
118.
Question, That the Committee is content with the clause, put and agreed to.
Clause 7 (Restriction on use of answers obtained under compulsion)
119.
This clause is outlined in pages 4 and 5 of the Bill and page 6 of the explanatory and financial memorandum. It amends article 183 of the Insolvency (Northern Ireland) Order 1989 so that answers given by an individual under a power of compulsion, conferred by article 182(4), cannot be used against him by the prosecution in subsequent criminal proceedings, except in very limited circumstances.
120.
Dr McDonnell: What does that mean, Chairperson?
121.
The Chairperson: I do not know.
[Laughter].
122.
Dr McDonnell: Who sets the limits?
123.
Question, That the Committee is content with the clause, put and agreed to.
Clause 8 (Insolvent estates of deceased persons)
124.
The Chairperson: This clause is outlined on pages 5-6 of the Bill and page 7 of the explanatory and financial memorandum. It inserts a new article 365A into the Insolvency (Northern Ireland) Order 1989 by addressing the effects of the Court of Appeal decision in the case of In re. Palmer Deceased (A Debtor) 1994 Ch. 316. In March 1994, the Court of Appeal attributed the ordinary, rather than the technical, meaning to "the estate of a deceased person" used in the context of an order-making power in section 421, which is article 365 in Northern Ireland.
125.
The consequence of that is that the debtor's interest, on the day of his death, in his share in property held on a joint tenancy - usually the matrimonial home - does not become available to the trustee to distribute among the creditors of a deceased insolvent. The clause allows the trustee of a deceased insolvent, if certain conditions are met, to apply to the High Court to recover the value of the deceased insolvent's former interest in a jointly owned property from the survivor for the benefit of the estate. The purpose of an order under article 365A is to cover debts and other liabilities of the insolvent estate.
126.
Ms Morrice: Does this mean that the matrimonial home is not given over to debtors?
127.
Mr Nesbitt: Under the old rules, if someone in a joint tenancy dies, the surviving tenant acquires his or her interest. The effect of this amendment will be that if a joint tenant dies and is found within five years to be insolvent, his interest in the joint tenancy forms part of his estate for insolvency purposes.
128.
Mr Armstrong: What if he commits suicide?
129.
Mr Nesbitt: The situation would be the same.
130.
Ms Morrice: In the past, the interest in the estate went to the surviving spouse. Where does it now go under this amendment?
131.
Mr Nesbitt: It now goes to the trustee of the deceased insolvent's estate.
132.
Ms Morrice: That is quite an interesting change.
133.
Mr Nesbitt: It would depend on the nature of the tenancy of the house. There are two types of tenancy - a tenancy in common and a joint tenancy - and this can happen only in a joint tenancy situation.
134.
Mr Wells: In the majority of cases, a husband and wife own the house between them.
135.
Mr Nesbitt: The estate would be divided in two.
136.
Mr Wells: Ms Morrice's point is important. If a deceased husband were found to be insolvent, would his wife be evicted, with her half-share of the property taken from her and sold?
137.
Mr Nesbitt: It depends on the type of tenancy. That happens only in a joint tenancy situation.
138.
Mr Wells: This is an important change.
139.
Mr Nesbitt: It is an important change in this area.
140.
Dr McDonnell: Are you referring to a house owned by a company?
141.
Mr Nesbitt: This has nothing to do with company law; it relates to cases of individual bankruptcy.
142.
Ms Morrice: My understanding is that the wife would normally have been entitled to the whole house under a joint tenancy, but that this amendment will enable creditors to take half the house from the wife, with the result that she will have to sell the property to pay the debts.
143.
Mr Nesbitt: That may be the case.
144.
Ms Morrice: This amendment has done that?
145.
Mr Nesbitt: Obviously, the matter would have to be settled in court. The Bill brings the law into line with current bankruptcy practice. Normally, in the majority of cases, the wife will obtain 50% of the house.
146.
Ms Morrice: Normally, they got the entire house.
147.
Ms Broadway: In an ordinary bankruptcy, the spouse would retain 50% of the property and the other half would go to the trustee. This clause will bring the law on deceased insolvency into line with normal bankruptcy law.
148.
Ms Morrice: Therefore, it is not changing the procedures, which have been custom and practice?
149.
Ms Broadway: It will redress the decision in the case of In re Palmer Deceased (A Debtor), which made the situation unclear. It stated that 100% of the estate would go to the wife, a situation that would not have arisen in an ordinary bankruptcy situation, where 50% would have gone to the trustee.
150.
Ms Morrice: Therefore, the wife has to pay the debts of the husband. Where she would normally receive the husband's half of the property, does she now have to give that over?
151.
Mr Reid: Normally, if the husband becomes bankrupt while he is alive, the ownership of the property is divided. Half of that is treated as belonging to the wife and the other half as belonging to what is termed the bankrupt's estate. In extreme cases that could result in the husband and wife being evicted if means cannot be found to allow the wife or any of her relatives to buy out the husband's share.
152.
Problems arise in situations where the decision in the Palmer case is allowed to prevail. A different decision would be applied where it is discovered that a woman's late husband was insolvent: the money would not go to the creditors; it would pass to the wife. That would have been anomalous vis-à-vis the situation where both husband and wife are alive, and the amendment is intended to redress that anomaly. The widow will lose her husband's interest in the house, which will become the creditors', as applies to any bankruptcy.
153.
Ms Morrice: Yes, but there is a big difference if the husband is dead.
154.
Mr Reid: I want to address a further inequality in the ownership of the house. Ownership can be through a joint tenancy or a tenancy in common. At present, if ownership is held through a tenancy in common, the wife will lose her husband's interest in the house. In a joint tenancy her husband's interest is safeguarded, and she will not lose out. It is an accident of the nature of the tenancy, and the amendment will address that inequity.
155.
The Chairperson: In summary, is this provision rolling back the courts decision?
156.
Mr Reid: Before the Palmer case, the deceased husband's share in the property would have passed to the creditors. That case decided that in the case of a joint tenancy the ownership would pass entirely to the widow. The Bill would restore the situation that prevailed before the Palmer case, that is to say, the value of the house would be divided between the husband and the widow, and the creditors would get the husband's share.
157.
It cannot be denied that the provision is not to the widow's benefit; however, it puts the law on a par with that which would apply if both husband and wife were alive. If a husband becomes bankrupt while he is alive, the matrimonial home can be lost, and, admittedly, that is a serious consequence of bankruptcy. However, if the decision in the Palmer case were to prevail, there would be the anomaly that a wife in a joint tenancy would be home and dry, with the matrimonial home preserved in its entirety for her, but that would not be the case in the instance of a tenancy in common.
158.
Ms Morrice: A few serous points must be clarified. First and foremost, if the Bill were enacted as it is, a campaign would be needed to inform husbands and wives of the arrangements that would best serve their interests as regards joint ownership of their home if bankruptcy occurs after a partner dies. Married couples must be able to understand what might happen.
159.
Secondly, what is the legal standing of jurisprudence, given that we are amending legislation to overrule the court's decision in the Palmer case?
160.
Mr Reid: Currently, in order for the wife to retain uninterrupted or unimpaired ownership of the matrimonial home following her insolvent husband's death, she would have to hold the home under a joint tenancy. That situation is an accident caused by the nature of the ownership of the home. Under the new arrangements, the same situation will apply irrespective of the nature of the ownership. I am sure that the average husband and wife, if the husband is engaged in business, would not have been aware that they needed to adjust their tenancy to safeguard the home in the event of the husband dying insolvent.
161.
Mr Nesbitt: In the majority of cases, the wife will lose at least 50% of the property.
162.
Mr Wells: What happens if the husband has the good sense to sign the whole property over to his wife?
163.
Mr Nesbitt: It depends on how many years before the bankruptcy that that is done. If it is done in the last five years before the husband dies, then -
164.
Mr Reid: It can be treated as a transfer at an under value. If the property was passed to the wife on the basis of "natural affection" and she did not buy out the interest at its value, that can be overturned at the court hearing following the husband's bankruptcy. If that happens, the wife might be required to restore the interest to her husband's estate.
165.
Mr Wells: How many years ago does that have to have happened?
166.
Mr Nesbitt: Five years. However, that would be settled in court.
167.
Mr Wells: Has this clause been equality proofed? Obviously, it is wives who will be affected in the majority of cases.
168.
Mr Nesbitt: There are not many cases of that nature - perhaps one or two a year.
169.
Mr Wells: It is not unknown for someone to commit suicide because of his debts, leaving a widow. Without wishing to be sexist, the vast majority of business people are still, unfortunately, men. Therefore, the link between death and the discovery of bankruptcy is not an unusual one. I share Ms Morrice's concern that further equality proofing is needed, given that the vast majority of people who will suffer as a result of this clause will be women who believe that, at least, they have retained the family home. Children are also involved. The only way that a widow would be able to dissolve the debt would be to sell up.
170.
Mr Nesbitt: That happens in the majority of cases.
171.
Mr Wells: Yes, but the difference in this case is that the woman has lost her husband, is left with a widow's pension and has to get out.
172.
Ms Morrice: The deceased husband will have been bankrupt, and she will be left with nothing. The clause would be a retrograde step.
173.
Mr Nesbitt: That situation could exist in the other 98% of cases.
174.
Ms Morrice: When they are still alive.
175.
Mr Nesbitt: Prior to the Palmer case, the wife would have lost the property. Palmer took the matter to the House of Lords and won on the basis of technical detail.
176.
Ms Morrice: Is Palmer a wife?
177.
Mr Nesbitt: Palmer is deceased.
178.
Mr Wells: The difference is that, in at least 98% of insolvency cases, the husband, wife and family are still together and have a prospect of rebuilding their lives. The husband can eventually get another job, after he has been forgiven for being a bankrupt. However, the cases dealt with by clause 8 are fraught with difficulties because the husband is dead and may have committed suicide or been driven to despair by his debts.
179.
Mr Armstrong: The deceased insolvent's wife could be an invalid, and their house may have been customised to meet her needs.
180.
Mr Wells: His wife could be 70 years old.
181.
Mr Nesbitt: I understand the social concerns.
182.
The Chairperson: Clearly, several of the Committee's concerns about clause 8 are now emerging. How will those concerns affect the Bill as a whole? If the Committee does not approve clause 8, will its views be taken on board and the Bill be resubmitted to the Committee? I share some of the Committee's concerns and I am considering what will happen in the future.
183.
Mr Nesbitt: The Committee must make known its objections, which we would then consider before returning to the Committee.
184.
Ms Morrice: I will pick up on a point made by Mr Wells. The Bill may have been equality-proofed, but, because of its detailed and technical nature, clause 8 could have been missed by the Equality Commission. We could request that the clause be sent back to those responsible for equality-proofing, together with the Hansard copy of this discussion. Those involved could give us advice.
185.
Mr Wells: Obviously, this is parity legislation, but I would like to think that our equality legislation is stiffer and more rigorous than that of the rest of the United Kingdom. I can see how that was buried and lost in the document. Granted, the clause may affect only one or two people a year, but knowing my luck, one of them will be from Kilkeel or Ballynahinch. None the less, it would do no harm to send the clause back to Brice Dickson of the Northern Ireland Human Rights Commission or Joan Harbison of the Equality Commission for Northern Ireland and ask their opinion, without delaying matters.
186.
I would like to know about a technical aspect of the progress of the Bill - what are the constraints?
187.
The Committee Clerk: The Speaker, rather than the Committee, sends Bills to the Equality Commission, so I will have to check the rules in Standing Orders to find out whether the matter must be referred back through the Speaker.
188.
Ms Morrice: The same rules apply for male and female spouses, so there is equality in that respect. However, the point was raised that, due to the nature of society, 98 % of the spouses are female.
189
.Mr Reid: One must also bear in mind the situation of the husband and wife. They may have acquired a luxurious house on the backs of creditors of the husband's business. Although I accept that the clause appears to hit the widow particularly hard when she loses the house, some of the creditors may be operating small businesses and may be hit hard if they cannot gain access to the husband's assets that were acquired with moneys that he had taken from creditors.
190.
Mr Nesbitt: The creditors could go to court and the decision could be revisited.
191.
Dr McDonnell: That is a valuable point. I have every sympathy with the point pursued by Ms Morrice and Mr Wells. I do not want a vulnerable person to become a victim of circumstances beyond his or her control. Equally, I would sympathise with creditors whose wives and children could be made vulnerable and who may, in turn, go to the wall too.
192.
Some companies go to the wall because someone has overpaid himself. Those companies may not have been in the top 100 of the FTSE share index, but we must be careful, because directors may have paid themselves salaries to fund luxurious lifestyles. Some company directors may have houses worth more than £1 million, but they cannot be allowed to continue living in such luxury at the expense of a creditor. A fine balance must be achieved. Eventually a legal case may result.
193.
Ms Morrice: The point is that the matter was decided in court in the Palmer case, and a judgment was made in favour of the spouse of the deceased. Up until now, the Palmer case ensured that the spouse benefited. The legislation will be changed to ensure that the reverse applies and the creditor benefits. The point is that we are changing the law to the disadvantage of spouses.
194.
Dr McDonnell: With all due respect, we need to know the details and circumstances of the Palmer case. To draw vague conclusions from vague information can be misleading. I know about several small companies that have been left in the lurch; they resent the fact that a business can just fold up and leave other creditors unpaid. Although we are talking about tragic sudden death or suicide in this case, people hold grudges. Creditors may feel that a fly-by-night merchant has padded himself and his family well and allowed the company to go bankrupt, having stashed his assets in such a way as to make them inaccessible to them.
195.
A fine balance must be achieved, and, although I agree with Ms Morrice's point, we must consider the bigger picture. I find it hard, therefore, to be prescriptive.
196.
Mr Reid: If the Bill were to adjust a joint tenancy, and make it an exception that the matrimonial home could not constitute an asset in the bankrupt's estate - in other words, preserve the exception made by the Palmer case - you would have to do that for all forms of tenancy. Otherwise a more serious inequality will arise: the accident of the nature of the tenancy will dictate whether the matrimonial home is preserved for the wife.
197.
Dr McDonnell: Another dimension leading on from that point is that if the matrimonial home is not regarded as an asset in the bankrupt's estate, it cannot be used as security for borrowing. Many businesspeople, especially small business owners, use their matrimonial home as security. By pursuing this policy, we may render that asset invalid as a means of security and, therefore, deprive small businesses of a lever to acquire capital.
198.
The Chairperson: Dr McDonnell made the relevant point that the detail of the Palmer case was probably important.
199.
Dr McDonnell: We all have strong social consciences, and it is right to examine specific cases, but only in limited circumstances. We must be wary of bouncing - [interruption.]
200.
Ms Morrice: We are changing the legislation. To date, legislation has allowed judgements to go in favour of the spouse.
201.
Mr Nesbitt: Only since the Palmer case.
202.
Mr Armstrong: It would still be possible to borrow on 50% of the value of the home.
203.
Dr McDonnell: No, it would not be possible. If the home is not an asset, it is not an asset. No bank would lend money to a small business if the home were no longer available as security.
204.
Mr Reid: The lender - a financial institution or bank - would take a charge over the matrimonial home as security on a loan to a small company operated by the homeowner, or to the homeowner himself if he owned the small business. If the businessman died insolvent, the lender would be locked out and would not be able to access its security. If the home was held under a joint tenancy and the husband died, the bank's security would be worthless. That places the bank in an appalling situation.
205.
Mr McDonnell: I will argue against myself now: before advancing money, on the basis of security in the form of a home or property, the bank could ask the borrower's partner to sign a waiver to take them out of the equation. The issue may not be as major as I thought initially.
206.
The Committee Clerk: Standing Order 32(1), "Public Bills: Human Rights Issues", states: For the purpose of obtaining advice as to whether a Bill, draft Bill or proposal for legislation is compatible with human rights (including rights under the European Convention on Human Rights) -
207.
Ms Morrice: We are not dealing with human rights; we are concerned about the equality aspects of the legislation.
208.
The Committee Clerk: There is no Equality Commission any more. Is the commission not part of -
209.
Ms Morrice: There are two separate organisations: Brice Dickson is head of the Human Rights Commission, and Joan Harbison is head of the Equality Commission.
210.
The Committee Clerk: The issue is not covered in Standing Orders.
211.
Mr Wells: That is an anomaly or a mistake; it should have been covered.
212.
The Committee Clerk: Standing Order 33(1) states:
"For the purpose of obtaining advice as to whether a Bill, draft Bill or proposal for legislation is compatible with equality requirements (including rights under the European Convention on Human Rights) the Assembly may proceed on a motion made in pursuance of paragraph (2)."
Paragraph (2) states:
"Notice may be given byany member of the Executive Committee, or
the Chairman of the appropriate Statutory Committee . of a motion "That the . Bill (or draft Bill or proposal for legislation) be referred to an Ad Hoc Committee on Conformity with Equality Requirements".
213.
The issue is not covered, as that Standing Order relates only to the setting up of an ad hoc Committee to consider the Bill.
214.
The Chairperson: Does that have to be carried out in the Assembly or in Committee?
215.
The Committee Clerk: The matter would be brought before the Assembly as a motion. The Committee could write to Joan Harbison to seek her advice on the matter.
216.
Ms Morrice: What happens to legislation if the Committee is not happy with a clause that it is scrutinising at Committee Stage?
217.
The Committee Clerk: The Committee recommends an amendment to the clause, or its removal.
218.
The Chairperson: After it receives advice.
219.
Ms Morrice: We must therefore seek advice on whether an amendment is needed.
220.
Mr Bohill: Mr Chairperson, would it be helpful if the Department were to carry out some quick research into the problem?
221.
The Chairperson: How quick is quick?
222.
Mr Bohill: We could prepare that for next week.
223.
Ms Morrice: We would need the Equality Commission's response also.
224.
The Committee Clerk: All the information would need to be available by the beginning of September.
225.
The Chairperson: Given the timescales involved, will the Committee have an opportunity to meet in September?
226.
The Committee Clerk: We will organise a time extension, if required, until 3 October 2002, in case extra time is needed.
227.
Ms Morrice: How can you get a motion approved now?
228.
The Committee Clerk: We can do so in September.
229.
The Chairperson: Can I have members' views; we have heard a good deal of debate? There is concern, but we need balance also.
230.
Mr Wells: That is why the Committee exists; it does not rubber-stamp everything. We merely require clarification, and if the Equality Commission advises that it is content with the matter, or that there is no room for manoeuvre because of parity, we will have to accept that. We will be able to say that we have done our best.
231.
The Chairperson: We need to receive clarification on clause 8.
232.
Ms Morrice: The question is whether the spouse of the deceased insolvent would be more disadvantaged under the new legislation.
233.
Clause 8 referred for further consideration.
Clause 9 (Model law on cross-border insolvency)
234.
The Chairperson: Members should refer to page 6 of the Bill, and page 7 of the explanatory and financial memorandum. This clause enables the Department, with the agreement of the Lord Chancellor, to give effect, with or without modification, to the United Nations Commission on International Trade Law model law on cross-border insolvency by secondary legislation.
235.
Question, That the Committee is content with the clause, put and agreed to.
Clause 10 (Interpretation)
236.
Members should refer to pages 6 to 7 of the Bill, and page 7 of the explanatory and financial memorandum. This clause sets out the meaning of certain terms used in the Bill. Subsection (2) deals with the legislative status of functions conferred on the Financial Services Authority.
237.
Question, That the Committee is content with the clause, put and agreed to.
Clause 11 (Orders)
238.
Members should refer to page 7 of the Bill, and page 7 of the explanatory and financial memorandum. This clause empowers the Department to create subordinate legislation to deal with matters arising as a result of the introduction and implementation of the Bill's provisions.
239.
Question, That the Committee is content with the clause, put and agreed to.
Clause 12 (Repeals)
240.
Members should refer to page 7 of the Bill, and page 7 of the explanatory and financial memorandum. This clause introduces schedule 4 to the Bill, which lists repeals to the Insolvency (Northern Ireland) Order 1989 and the Companies (No. 2) (Northern Ireland) Order 1990.
241.
Schedule 4, which deals with repeals, appears on page 46 of the Bill.
242.
Question, That the Committee is content with the clause and the schedule, put and agreed to.
Clause 13 (Commencement)
243.
Members should refer to page 7 of the Bill, and page 7 of the explanatory and financial memorandum. This clause provides for the Department to make an order - or orders - bringing the provisions of the Bill into operation except for this clause and clauses 9, 10(1), 11 and 14, which will come into operation on Royal Assent.
244.
Question, That the Committee is content with the clause, put and agreed to.
Clause 14 (Short title)
245.
Members should refer to page 7 of the Bill.
246.
Question, That the Committee is content with the clause, put and agreed to.
MINUTES OF EVIDENCE
Tuesday 3 September 2002
Members present:
Mr Neeson (Deputy Chairperson)
Mr Armstrong
Mr Clyde
Ms Courtney
Mr McClarty
Dr McDonnell
Mr McMenamin
Mr Wells
Witnesses:
Mr Mike Bohill
Mr Reg Nesbitt
Ms Julie Broadway
Mr Jack Reid
247.
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.
248.
Mr Bohill: Mr Nesbitt will deal with the substantive issues, and we shall chip in where necessary.
249.
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 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.
250.
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.
251.
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.
252.
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.
253.
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.
254.
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.
255.
However, there is an important safeguard. Clause 8 does not give a trustee administering a deceased insolvency an automatic right to any interest which 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.
256.
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."
257.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?
258
.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.
259.
The Deputy Chairperson: Is that not contrary to the thrust of section 75 of the Northern Ireland Act 1998?
260.
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.
261.
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 be picked up even if it were equality-proofed.
262.
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.
263.
Mr Wells: Is Northern Ireland equality legislation stronger than that in the rest of the United Kingdom?
264.
Mr R Nesbitt: Yes.
265.
Mr Wells: So you are saying that, if we decide to seek an amendment, we should examine derogation from the legislation which 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?
266.
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.
267.
Mr Wells: Over equality?
268.
Mr R Nesbitt: Yes.
269.
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.
270.
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.
271.
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.
272.
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.
273.
Mr R Nesbitt: It cannot be said that it will be only women who are affected, for men can obviously be affected too.
274.
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.
275.
Mr R Nesbitt: What about the wives or husbands of the creditors? They are put in the same position.
276.
Mrs Courtney: I have sympathy for them.
277.
Mr R Nesbitt: Yes, but it is not really any different. What happens if a wife gains from a large property which 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.
278.
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 basis of the legal opinion which we have received.
279.
Mr Nesbitt, have you further amendments to bring to the Committee's attention?
280.
Mr R Nesbitt: I shall give a résumé of the amendments to date, and also of the proposed amendment which the Minister has not yet approved.
281.
Mr Bohill: Mr Nesbitt will address the amendments which we propose be adopted and which are subject to the Minister's agreement.
282.
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.
283.
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 which 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 which 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.
284.
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.
285.
The Deputy Chairperson: Is it parity legislation?
286.
Mr R Nesbitt: Yes.
287.
Mr Wells: I presume the amendment is to prevent any obvious abuse of that provision.
288.
Mr R Nesbitt: That appears to be the policy decision taken by Westminster.
289.
Mr Wells: Should we therefore expect the whole group of companies to bear liability for their holding company?
290.
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.
291.
Mr Wells: What is the timetable for the amendments? Will they arise in the Consideration Stage?
292.
Mr R Nesbitt: Yes.
293.
The Deputy Chairperson: As there are no further questions, I thank you for attending the meeting.
MINUTES OF EVIDENCE
Wednesday 11 September 2002
Members present:
Mr Neeson (Deputy Chairperson)
Mr Clyde
Ms Morrice
Dr O'Hagan
Mr Wells
294.
The Deputy Chairperson: The Committee has already dealt with the Insolvency Bill in two previous sessions. Comments have been received from the Minister of Enterprise, Trade and Investment, the Equality Commission and the Assembly's legal adviser, particularly in regard to clause 8 of the Bill.
295.
I am aware that some Committee members still have difficulty with clause 8, and we must examine that. You may remember that, when officials appeared before the Committee last week, amendments were put forward. There were no problems with those; it was a matter of tidying-up the situation. Let us now deal specifically with clause 8.
296.
Ms Morrice: I apologise for having been absent at the last session of the meeting at which the matter was discussed. I still have concerns. It is very useful to have had the Minister's interpretation, and I appreciated his explanation. I took on board the points made by the Equality Commission and by our legal adviser.
297.
The legal adviser's points are possibly the most interesting, and one of those gives us an opening. It is interesting that in his letter of 29 August, the Minister states that he accepts that the potential adverse consequences of clause 8 are likely to fall more heavily on women. It is important that the Minister has recognised that, and the Committee should not allow it to happen. Are the resources available to insert an amendment to clause 8 so that there is no question of more women than men suffering adversely?
298.
The Committee Clerk: The Committee has two options. First, if the Committee is not content with the clause as it stands it can propose an amendment. The clause is drafted in such a way that nothing in it pertains to a widow whose partner was declared insolvent following his demise.
299.
Secondly, the Committee could oppose the clause, which would remove the question of joint tenancies. That means leaving a gap in the legislation.
300.
The Committee must decide whether to propose an amendment. There are complications in that. Should that refer only to domestic properties, or should it also refer to business properties? There is the question of whether benefit should be given to the widow of someone who was insolvent or to that person's creditors.
301.
Ms Morrice mentioned resources. Currently, there are none available to Committees for drafting. However, the Secretariat staff, with legal advice, draft proposals for amendments for Committees.
302.
Mr Wells: There is a principle to consider. If the property is a business property, I see no problem with the estate having the right to seize it. The amendment would apply simply to the matrimonial home. That is a reasonable stance to take and would further eliminate opportunities for the amendment to cause any difficulties. However, if Mr and Mrs Smith are extremely wealthy, and she owns 40% of the business, there is no discrimination in taking that into account if the business goes bust. That principle will apply if she has recently lost her husband and is left at home with three children. Is that a possible middle way to get round the suggested difficulties?
303.
We must also ask whether we have time to do it. How tight is the deadline on this legislation?
304.
The Committee Clerk: Consideration Stage of the Bill is currently scheduled for 23 September, but that will be adhered to only if the Committee deliberations have been completed by today or next week. As with any Bill, the Business Committee decides the schedule for the following week's business on Tuesdays, and Order Papers are issued on Wednesdays. There are one and a half days to table amendments. This is exactly the same time as for any other Bill.
305.
Mr Wells: How long would it take for an amendment to be drafted?
306.
The Committee Clerk: The amendment would be drafted in time for it to be laid by 4.30pm on the Thursday afternoon.
307.
However, I issue a word of caution. The amendment may not be fully competent, but were it to be passed by the Assembly, we hope that, at the next Stage, the Executive would recognise the will of the Assembly. If the amendment were in any way flawed, the Executive's draftsmen would work at it so that, at Further Consideration Stage, a fully competent amendment could be laid to the Bill.
308.
Mr Wells: All we are talking about is such property that will not include the matrimonial home.
309.
Ms Morrice: Exactly.
310.
The Committee Clerk: The amendment will only apply to the matrimonial home in cases in which joint tenancy applies.
311.
The Deputy Chairperson: Can we be clear about what we want to achieve? Ms Morrice, are you satisfied that the amendment will only include the matrimonial home?
312.
Ms Morrice: I agree with Mr Wells. The separation is useful. The problem is that, in the majority of cases, it is a woman whose husband has died and is bankrupt. If she is joint tenant of the home, she must find the money to pay the creditors for his half of the home. That is my understanding of it.
313.
If there are difficulties between the creditors and the wife, the creditors will be at a disadvantage - which has been pointed out here - because the amendment will not allow them to use the funds of the half-share of the property. The difference between the creditors and the widow in this case is that the widow has not only lost the money from the business, but she has also lost her husband. That is an additional burden, which should be taken into account. The fact is that, in the majority of cases, it is a woman who is in that situation and not a man. That may indeed change, but it implies a certain discrimination against women. It would be very useful to see what amendment we can devise to exclude the matrimonial home from the clause and ensure that it is legally compatible.
314.
The Deputy Chairperson: I have just benn reminded of a related issue about the complications that could arise if a man were in the same situation and his wife were bankrupt.
315.
Ms Morrice: The problem relates to the loss rather than to the gender of the person. In this case, the discrimination or the adverse consequences would affect women more than men. I agree that we should not think that it is only women who are in that situation; men could also be affected.
316.
Dr O'Hagan: I am doubtful about the status of the relationship. Perhaps we should not specify "the matrimonial home", for people are in long-term relationships without being married; something of that sort may need consideration.
317.
Mr Wells: Is there no protection for unmarried people? That is the difficulty - there is no protection at all for common-law relationships regarding intestacy and property. That is the great gap in the legislation. If one is not married, the spouse is entitled to nothing. That is being examined, but as things stand, the partner does not exist as far as the law on property rights is concerned.
318.
The Deputy Chairperson: Would it be possible to extend the Committee Stage?
319.
The Committee Clerk: I presume so.
320.
Ms Morrice: Do we need an extension if an amendment can be drawn up?
321.
The Committee Clerk: An extension is unnecessary in such circumstances, Mr Chairperson, because the Committee Stage is due to conclude at the beginning of October 2002. If the Committee agrees the report today, that would mean that it would have at least two or three weeks to sort out and approve the agreed amendment.
322.
The Deputy Chairperson: Is the Committee consensus that an amendment is necessary to address the issues raised by members? Might we ask the Committee Clerk to examine it and suggest possible amendments at the next meeting of the Committee?
Members indicated assent
323.
Must we still agree the report today?
324.
The Committee Clerk: The draft report does not go into detail; it simply says that the Committee considers that clause 8 should be amended, which is adequate.
325.
The Deputy Chairperson: Can we also agree the amendments that we brought forward last week? There were no problems at the time. Could someone make a formal proposal?
326.
Mr Wells: Yes.
327.
Ms Morrice: I second that. I would like to clarify the points raised by Dr O'Hagan and Mr Wells on the wording "matrimonial home" and common law. A background note on the situation for unmarried couples would be useful.
328.
The Committee Clerk: There should be a legal definition.
329.
Ms Morrice: I assume that along with the proposed amendment we shall receive information on how it affects couples' long-term relationships.
330.
The Chairperson: With the proviso that the Committee will bring forward an amendment, can we agree the report?
Members indicated assent.
APPENDIX 3
WRITTEN SUBMISSIONS
THE MINISTER FOR ENTERPRISE, TRADE AND INVESTMENT
29 August 2002
I understand from my officials that concern was raised during the Committee Stage discussion of this Bill on 29 July by Ms Jane Morrice MLA in relation to Clause 8, and that consideration is currently being given as to whether to extend this Stage of the legislative process to allow time for it to be considered further.
As you are aware, I am keen that we should have this Bill completed on schedule in this session and I want, therefore, to set out for you and your Committee members the detailed policy reasons why I believe it is of fundamental importance that Clause 8, as presently drafted, should remain in place.
CLAUSE 8
Clause 8 deals with what happens to someone's interest in property, owned under a joint tenancy, if they die insolvent.If someone dies and their assets are insufficient to pay their debts, an insolvency administration order can be taken out against their estate. This is similar to a Bankruptcy Order against a living person and provides for an orderly sale of assets by a trustee and distribution of the proceeds to the creditors. The making of an insolvency administration order is an exceptionally rare occurrence, since 1 April 1997 just 3 such orders have been made for the whole of Northern Ireland as against almost 1800 Bankruptcy Orders in the same period. To our knowledge, none of the 3 orders involved property under a joint tenancy (the focus of Clause 8).Under the current law, creditors in a deceased insolvency have no claim against any interest, which the deceased had in property owned under a joint tenancy. If a husband and wife own a house under a joint tenancy and one of them dies his or her interest in the property passes straight to the survivor and is protected from any subsequent claim arising through the late spouse's estate being found to be insolvent. This is based on a decision made by the Court of Appeal in 1994 in what is known as the Re: Palmer case.
Under Clause 8, claims against a deceased insolvent's interest in property owned under a joint tenancy would be permissible. A trustee appointed to administer a deceased insolvent's estate would be fully entitled to seek a Court Order to require payment of whatever sum was needed to pay their late spouse's debts up to a maximum of whatever the value of their interest in the property had been.
CONCERN RAISED BY MS MORRICE
I understand Ms Morrice was concerned that Clause 8 would have a disproportionately greater impact on women/widows. This is because the majority of deceased insolvents are men, so that the majority of surviving spouses who would be affected by Clause 8 would be women. The reason for the majority of deceased insolvents being men is that most insolvencies result from having been engaged in business and the majority of those engaged in business are men.
REASON FOR INCLUSION OF CLAUSE 8
Two key guiding policy principles underlying general UK-wide insolvency law, and in particular 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. I attach as an Annex a short note on how this aspect of the law is applied.
The effect of the Appeal Court judgment in the Re: 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 them being very comfortably placed financially compared to the creditors.
CONSIDERATION
There is no doubt that if a husband and wife own their house under a joint tenancy and one of them dies, the surviving spouse will potentially be worse off under Clause 8 should an insolvency administration order be made. The impact would be equally severe whether it is a husband or wife who dies. However, I do accept that the potential adverse consequences of Clause 8 are likely to fall more heavily on women/widows.I certainly acknowledge, too, that my Department is required by section 75 of the Northern Ireland Act 1998 to have due regard to the need to promote equality of opportunity between men and women generally and between persons with dependants and persons without, and I am anxious that it should comply fully with this refinement.I also have every sympathy with spouses of either sex who find their right to continue living in their home being contested, particularly following bereavement.Nevertheless, there are several key factors which point up the necessity to amend the present law. These are:The number of deceased insolvencies is miniscule; and the number involving an interest in a house owned under a joint tenancy is even smaller. Since 1 April 1997 there have been just three deceased insolvencies in the whole of Northern Ireland. To our knowledge, none involved a joint tenancy. Therefore, the potential to impact significantly on any group, including women, simply does not exist.The present exemption has arisen purely as a result of a legal technicality peculiar to joint tenancy and does not arise in other forms of property ownership; no issues of fairness or equal treatment of women were involved in the Appeal Court judgment in the Re: Palmer case.The present exemption runs counter to the over-arching principle behind insolvency law; viz that there should be effective means to ensure that debtors pay their debts.The present exemption is at variance with what happens in other insolvency proceedings. In bankruptcies, trustees can and do claim for creditors' benefit the debtor's interest in jointly owned properties, including their dwelling house (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 which they could not be expected to foresee when allowing credit - ie a debtor's death - can leave them significantly worse off by denying them access to one of the deceased assets ie any interest held in property owned under a joint tenancy.Under the 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, whereas he would be barred from doing so if the property happened to be owned under a joint tenancy.Clause 8 will bring the law in Northern Ireland into line with that in GB. To withdraw/amend the Clause on the grounds of its having a potentially unequal impact on women/widows would create a derogation in the rights of creditors in deceased insolvencies in Northern Ireland compared to their counterparts in GB.However, there is an important safeguard which also needs to be taken into consideration. Clause 8 does not give a trustee administering a deceased insolvency an automatic right to any interest which 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 as to whether or not such an order should be made, and would be required to have regard to the interests of the survivor.I am firmly of the view that the correct policy decision is to allow Clause 8 to stand as it is, and it will be my intention to continue to promote its inclusion in the Bill before the Assembly.I look forward to your response.
SIR REG EMPEY MLA
Minister for Enterprise, Trade and Investment
ANNEX
The Legislation Governing the Administration of Deceased Insolvencies
In Northern Ireland the Administration of Insolvent Estates of Deceased Persons Order (Northern Ireland) 1991 applies Article 309 of the Insolvency (Northern Ireland) Order 1989 to the administration in bankruptcy of insolvent estates of deceased persons. A trustee administering a bankruptcy is able under Article 309 to apply to the Court for an order in respect of an interest in a bankrupt's dwelling house. There are safeguards for spouses or former spouses and children, but, after an interval of one year has elapsed from the date on which the bankrupt's estate vested in the trustee, the Court is required, unless the circumstances of the case are exceptional, to assume that the interests of the bankrupt's creditors outweigh all other considerations.
EQUALITY COMMISSION
2 September 2002
I write to reply to your letter of 31 July 2002 on clause 8 of the Insolvency Bill. I appreciate that the Committee has raised concerns about the potential differential impact of the clause on women compared to men. While the particular area of insolvency law is not one raised frequently with the Commission, your Committee has identified a potential issue of indirect sex discrimination to the extent that the proposed clause may impact adversely on women.However, we understand that the number of deceased insolvencies is very small and it may therefore be very difficult to establish disproportionate effect. In any event, any such disproportionate effect would be subject to a test of objective justification and it may be that the arguments put forward to protect the interests of creditors would satisfy such a test.I trust this clarifies our position.
JOAN HARBISON
Chief Commissioner
THE INSTITUTE OF CHARTERED ACCOUNTANTS IN IRELAND
3 July 2002
INSOLVENCY BILL
The above named Bill has been considered by the Insolvency Technical Committee of the Institute of Chartered Accountants in Ireland who wish to express their appreciation at having the opportunity to do so. The comments of the Committee are attached.The Institute also responded to the Consultation Document "Proposals for a new Company Voluntary Arrangement Procedure" and attach a copy for your information.As a general comment the Institute would like to stress its continuing support for conformity of the legislative requirements in Great Britain and Northern Ireland and hopes the approach adopted by the Assembly in this instance will continue.Should you wish to discuss these matters in greater detail with members of our Committee please do not hesitate to contact me.
JOHN BOWEN-WALSH
Secretary
Insolvency Technical Committee
1. Company Voluntary Arrangements (CVA's) - Status of Moratorium Period Creditors
It is not clear at what date it is intended that claims will be taken for the purposes of participating in the arrangements.At present, in both company and individual voluntary arrangements where there is no immediately preceding insolvency process, claims are calculated for voting purposes as at the date of the meeting, and this is also the date at which claims are generally taken for the purposes of dividend.Paragraph 36(2) of Schedule A1 is drafted in a way which suggests that the same would apply in a CVA preceded by a moratorium (subject to the drafting of the supporting rules). However, the Explanatory and Financial Memorandum refers to binding 'all creditors of the company owed money at the start of the moratorium'. It is not clear to us whether this means simply that all creditors who are owed money at the start of the moratorium are bound (for whatever their debt is at the date of approval), or whether it means that creditors are bound for the amount owed to them at the start of the moratorium.
We note that the relevant date for the calculation of preferential claims is the date of filing the documents in court for the purposes of obtaining the moratorium. Where the relevant date for preferential claims is earlier than the date at which claims are to be taken for the purposes of participation, the problem arises of the status of any debts arising between the two dates. This was the issue in the Kenneth George Hoare case ([1997] BPIR 683), where the court had to determine the status of VAT arising between the date of the interim order and the approval of an individual voluntary arrangement. Providing that preferential claims are to be calculated at the date of the arrangement taking effect would avoid this problem.
2. Voluntary Arrangements Generally - Binding of Unknown Creditors
The Bill provides that in every type of voluntary arrangement, approval binds not only all creditors who are entitled to vote at the meeting, but all creditors who would have been so entitled if they had had notice of it (Schedule A1, para 36(2); Schedule 2, para 6; Schedule 3, para 9). Under current legislation only those creditors who have received notice of the meeting are bound. This change raises a number of potential difficulties, but the one which we feel is most readily susceptible to correction by amendment to the Bill is the effect of these provisions on those with claims under the Third Parties (Rights against Insurers) Act 1930.We agree in principle that unknown creditors should be bound by an arrangement. There are, however, some complications which will need to be carefully considered. One such is how to bind a guarantor into the arrangement of a principal debtor. Perhaps this could be done by allowing the guarantor as well as the creditor to vote, for a sum to be agreed by the chairman of the meeting, but this is a very difficult area. Generally, the release of a principal debtor will only release the guarantor in the absence of express provision in the guarantee, and most well drawn guarantees do contain such provisions. In a liquidation or bankruptcy a guarantor cannot prove at all until the whole of the principal debt has been paid. The binding of a co-debtor in an individual voluntary arrangement raises similar issues.
Another problem area is the position of creditors who have rights under the Third Parties (Rights Against Insurers) Act 1930. Such creditors should not be bound by an arrangement if it prejudices their rights to recover their claim from the insolvent's insurer. In the case of Sea Voyager Maritime Inc v Bielecki ([1998] BPIR 655; [1999] 1 BCLC 133) the court held that a creditor who was bound by an arrangement was unfairly prejudiced because the compromise of his debt prevented him from proceeding against the insurer. This problem would be exacerbated by the proposed new provisions unless specific exception were made for creditors who have such claims. We suggest that the rights of creditors under the 1930 Act should enjoy statutory protection where their claim against the insolvent is compromised.
3. CVAS - The Duties of the Nominee During the Moratorium
Paragraphs 25 and 26 of Schedule A1 to the Bill allow the company or other affected parties to challenge the nominee's actions by application to the court. The paragraphs highlight the need to draw a distinction between two very different roles which seem to be confused within the draft clauses. They are, on the one hand, that of an independent office holder with a duty to the general body of creditors and other parties affected by the insolvency process, and, on the other, that of a professional adviser with a duty of care to his client. These two roles could clearly be consistent. Under current law it is clear that a nominee or supervisor must be independent of the company or debtor in relation to which he acts and that he has a wider statutory duty to the general body of creditors. Accordingly, in those of the current draft clauses which deal with the nominee's duty in relation to the evaluation of the proposal and its submission for consideration by the creditors, it is clearly envisaged that the nominee should be independent of the company and observe a wider duty to balance the conflicting rights and interests of the various affected parties. On the other hand, the provisions of paragraph 25 and 26 seem to be predicated on the assumption that the nominee has a duty of care to the company. We agree that a nominee should be liable for not complying with his statutory duties (for example he should not approve the giving of security during a moratorium unless that is for the benefit of the company). However, the concept of liability for any loss causing damage to the company suggests that if such loss is caused by the nominee's bona fide exercise of a discretion he should somehow have exercised it in a different way to prevent that loss. For example, if the directors wished in order to continue trading to make a duress payment which seriously depleted the assets and inordinately preferred one creditor to the others, the refusal of the nominee to permit that payment might cause damage to the company but would not necessarily be wrong. The nominee will have pursued what he believes to have been the correct course of action in the light of his duty to balance the various conflicting interests and should not be liable to the company for doing so.
19 October 2001
PROPOSALS FOR A NEW COMPANY VOLUNTARY ARRANGEMENT PROCEDURE
The proposals contained in the above named consultation paper have been considered by the Insolvency Technical Committee of the Institute of Chartered Accountants in Ireland who wish to express their appreciation at being included in the consultation process.The response of the Institute to the matters on which comments were sought is attached.If you wish to enquire further of the Institute on any of our comments please do not hesitate to contact me.
HEATHER BRIERS
Director
Quality Assurance
Question 1
Given that the directors take the initiative to seek an arrangement with creditors, is there a practical case for arguing that someone other than the directors should choose the nominee? If so, who and on what basis?
We saw no practical case for arguing that someone other than the directors should choose the nominee. The nominee will be someone who has not had any recent direct professional relationship with the directors or the company and in addition, as noted, all nominees will be licensed and regulated.
Question 2
Should a secured creditor be given the right to replace the nominee chosen by the directors provided that it bears the additional cost? If the secured creditor should not have to bear the cost, who should?
Under the current legislation the secured addition will in most, if not all cases, have power to appoint an Administrator Receiver. In practice any CVA will require funding and therefore the support and cooperation of the secured creditor is essential however they should not have an enhanced right to interfere in what is essentially a company driven solution. Secured creditors are already in a position which grants them significant influence and we so reason to increase this.
If, however, they are granted a right to replace a nominee it should be they who bear the costs. It is inappropriate that the cost be borne by the company as this could be detrimental to any possible dividends.
Question 3
Has the correct information to be filed at Court, in order to justify a moratorium, been identified?
The correct information to be filed at court in order to justify the moratorium has been identified.
Question 4
Are any further provisions required to ensure that a company is not unreasonably restricted in using charged book debts to finance its ongoing business without putting the charge holder at inappropriate risk?
There are no further provisions required.
Question 5
Should the meetings be able to pass any other resolutions? If so, what?
No.
Question 6
Should creditors be able to discover why a nominee has withdrawn? If so, would the availability of a report on the Court file suffice?
There are advantages and disadvantages of stating the reasons. Should a further attempt at a CVA be considered it is relevant to third parties if the circumstances, which frustrated the situation in the first instance, remains therefore a court record of this will be of value. In the circumstances where the nominee has lost confidence in the directors for a number of reasons he should not be required to declare anything that would lead to defamation of character of the directors and possible exposure to litigation. The prima facie need is to protect creditors in the situation and preserve the business and withdrawal of a nominee should not have to be publicly explained for either situation. As a result if there is a need to report there should be a short option list available for all cases so that the nominee ticks a box. As a result if there is a need to report to the Court (not the creditors) there should be a short option list available for reasons for withdrawing.
Question 7
Alternatively or in addition, should nominees be required to report their reasons for withdrawal to their authorising bodies?
Nominees should not be required to report their reasons for withdrawal to the authorising bodies. The authorising body has no active day to day role in this procedure and no benefit would be gained from their receipt of such notification. As part of the standard monitoring process such matters will be reviewed.
Question 8
Are you able to suggest an alternative solution to this problem?
The proposed procedures are adequate - any creditors may, if dissatisfied with the decisions of the nominee, report this to the nominee's authorising body. It would be very surprising if a nominee with a history of failed cases was not brought to the attention of his authorising body.
Question 9
Is it practical to provide for the nominee to be replaced?
It is not practical to provide for the nominee to be replaced, except for grounds of ill health or the like or where there is a conflict of interest. We do not think that the directors should have the right to displace a nominee. The directors have the option of framing the voluntary arrangement proposals as they see fit and, indeed, to propose an alternative person to act as supervisor, instead of the nominee. This should be sufficient.
Question 10
If so, are there any particular circumstances in which replacement might be appropriate?
Replacement would be appropriate in the already cited circumstances of illness, death or the discovery of a conflict of interest. It could theoretically also arise in the circumstance of a specialist industry where it would be more effective to have a nominee with experience in this specialism.
Question 11
If directors are dissatisfied, should they have a right to apply to the Court to replace the nominee?
Yes, if directors are dissatisfied for good reason, then the court should be permitted to judge as to whether a replacement is appropriate.
Question 12
Should there be a time period beyond which an application to the Court on the grounds that the arrangement unfairly prejudices a creditor's particular interests cannot be made? If so, what should it be, when should it commence and are any special provisions appropriate for "unknown creditors"?
Yes. Time limits should be short and stringently applied as otherwise arrangements could be unreasonably constrained. We would suggest a time period of no more than 28 days.
Question 13
Should the proposal at paragraph 30 also be applied to the existing CVA procedure?
Yes.
Question 14
How can a creditors' committee be formed during the moratorium?
Currently this is done on an informal basis to achieve consensus for continuing support for trading with key suppliers. The formalisation of this may be possible on a nominee recommendation at the application for moratorium stage but it is difficult to know where some of the most complex sensitivities lie, as there are some difficult creditors who may be essential to the future of the business but who are not owed a lot of money. The creditor committee cannot be voted for without a creditor meeting therefore unless there is a company nomination process there is no obvious mechanism to make a committee.
Questions 15-17
15. Are you able to identify and qualify any additional direct or indirect costs that would be likely to arise for your business as a result of these proposals being enacted?
16. In particular do you consider that there will be any ongoing cost (ie a cost for which there is no corresponding benefit) to your firm as a direct result of introducing the new procedure in legislation?
If the answer is yes:a) How much is this likely to be on an annual basis?
b) How have you calculated this?
17. In addition, do you consider that there will be any one off costs, as a result of the new procedure being introduced, in respect of, for example:
a) familiarising yourself and your staff with the requirements of the new procedure;b) reprogramming any computer software; orc) redesigning internal forms, etc?
We believe that there will inevitably be additional costs in introducing new procedures. However until we have a clearer idea of the responsibilities and duties of the nominee it is impossible to quantify these.
Question 18
Are you also able to provide an indication of the likely level of cost savings or other financial benefits which might accrue for companies using the new procedure as opposed to the next best available insolvency procedure to deal with their financial situation?
We do not believe it is possible to quantify this at this stage.
Question 19
To what extent do you think this package will result in a greater number of CVA's? We would welcome any attempt to quantify this
We believe that the introduction of the new procedure will result in a greater number of CVA's given the protection offered by the moratorium which will provide the company with a defence against winding up petitions where the company is viable and can propose a workable CVA. We would add that whilst we believe CVA's will increase we do not believe there will be a similar increase in the percentage of successful CVA's.