Economy, Jobs and Fair Work Committee

Meeting date: Tuesday, October 31, 2017

Official Report 466KB pdf

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Subordinate Legislation

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Scotland Act 1998 (Insolvency Functions) Order 2017 [Draft]

Agenda item 2 is subordinate legislation. The Scotland Act 1998 (Insolvency Functions) Order 2017 has been laid under the affirmative procedure. We have with us the Minister for Business, Innovation and Energy, Paul Wheelhouse, and two officials from his team, Alex Reid and Neil MacLeod. Welcome to the three of you.

I invite the minister to make an opening statement on the order.

I am pleased to have the opportunity to address the committee and bring forward this order as part of a package of measures in an on-going project to update and modernise corporate insolvency in Scotland, particularly the insolvency rules for the winding up of companies currently contained in the Insolvency (Scotland) Rules 1986. The project follows on from the recent modernisation of rules for company insolvency in England and Wales, which culminated in the making of the Insolvency (England and Wales) Rules 2016.

By way of background, I should explain that, under the devolution settlement, the law on corporate insolvency in Scotland and the division of legislative responsibilities between the Scottish and United Kingdom Parliaments and Governments is complex. That is particularly true in relation to winding up, which is sometimes known as liquidation. For example, in relation to business associations, the general legal effect of winding up is reserved but the process of winding up is devolved.

In an effort to facilitate the efficient, effective and user-friendly modernisation of the Insolvency (Scotland) Rules 1986, both Governments agreed that it would benefit the petitioners if the rules on Scottish company winding up and any further changes to future Scottish statutory instruments were contained in one instrument rather than being split between a Scottish Government SSI and a UK Government statutory instrument as would require to be the case under the devolution settlement as it currently stands. Furthermore, because of the complexity of the winding-up reservation, it is not always clear whether a winding-up matter can be said to relate to the general legal effect as a reserved matter or whether it relates to process as a devolved matter. It would therefore have been difficult for the Scottish and UK Governments to draft separate winding-up rules that dealt only with matters that fall within their powers.

Accordingly, both Governments have agreed to the preparation of a combined order under sections 63 and 108 of the Scotland Act 1998. Section 63 of the act enables an order to

“provide for any functions, so far as they are exercisable by a Minister of the Crown”

that is, a UK minister

“in or as regards Scotland, to be exercisable ...

(b) by the Scottish Ministers concurrently with the Minister of the Crown”

with the consent of that minister.

Conversely, section 108 of the act enables an order to

“provide for any functions exercisable by a member of the Scottish Government to be exercisable— ...

(b) by a Minister of the Crown concurrently with the member of the Scottish Government

but with the consent of that Scottish Government minister. The order will therefore allow for the mutual conferring of functions between Scottish ministers and a minister of the Crown, so that both have the power to bring forward, as appropriate, winding-up rules or regulations for companies, incorporated friendly societies and limited liability partnerships in Scotland, irrespective of whether those rules or regulations relate to reserved matters under schedule 5 of the Scotland Act 1998 or matters that are not reserved.

Crucially, each Administration must agree to the other Administration exercising any functions conferred by virtue of the order. That approach will enable each Administration to make provision on winding-up matters without any doubts being cast on the scope of the relevant enabling powers.

As noted earlier, we believe that users of the legislation will benefit as the order furthers the aim that rules on the winding up of companies in Scotland will be contained in one instrument rather than being split between two, thereby easing the transparency of regulation in respect of the general legal effect and process. That view is shared by the Institute of Chartered Accountants of Scotland in its letter of 30 October to the convener. The immediate intention is that the Scottish Government will, with the consent of the UK Government, take forward an SSI to make provision for winding up in reserved and devolved aspects, as part of the current project to replace the Insolvency (Scotland) Rules 1986 with updated and modernised rules.

Convener, I hope that you and the members of the committee will agree that this is a sensible approach to enabling the modernisation of corporate insolvency in Scotland to move forward in an effective manner, and I believe that it provides an excellent example of the two Governments working together to make the Scottish devolution settlement work for the people of and industry in Scotland.

As set out in correspondence that I issued to the committee on 26 October but which was, I believe, received only yesterday, the order has no wider impact, given that it has been defined narrowly around the issue of winding up. It will make worthwhile improvements and make processes more efficient and effective.

I thank the committee for its on-going support and for taking the time to consider the order. We are, of course, happy to take questions, if that would be helpful.

Thank you, minister. Do members have any questions?

The minister has mentioned the input of ICAS. I should declare that I am a member of ICAS, but I have to say that I often disagree with it. It would rather have had the whole thing re-reserved so that Westminster could just get on and do its own thing. How did the Scottish Government feel about that?

As you might know, the Scottish Government objected to these powers being re-reserved under the Smith commission process, but we believe that we have found a way forward and that we will be able to work together with UK ministers on a more coherent approach to updating insolvency practice with regard to winding up. We believe that the approach, under which agreement will be sought from Scottish ministers on regulations that are taken forward in the UK Parliament and vice versa, is sensible in addressing the difference in views that might be held by ICAS or others. I know, though, that ICAS strongly supports the approach that is being taken, as is set out in the letter.

Thank you.

Of course, the Scottish Government might like to get on with things, but the committee has sought an assurance—and you mentioned your letter in that respect—that, in the event that consent is given to the UK Government on matters touching on Scotland, you as minister will allow the committee the opportunity to scrutinise whatever legislation or subordinate legislation is being introduced before any commitment is made or decision taken.

I am happy to reconfirm that to the committee today. I appreciate that members might not have had the chance to read the letter, but I very much emphasise our strong belief that the committee and indeed Parliament should be consulted on changes that are taking place in advance of our giving agreement to UK ministers.

Following the convener’s question and the letter that we received yesterday, I would suggest that, although you have given an assurance about the matters that the convener has just raised, a future Government might choose not to give the same assurances. Can you clarify the formal statutory processes that give effect to that assurance, or does the assurance come just from your Administration?

In respect of coming to Parliament to seek agreement?

Yes.

I will ask colleagues to confirm the legal aspects of the requirements, but this Government certainly believes that it is important to consult Parliament on any such changes and to get agreement. I am happy to put our commitment to that on record, but I will ask—with your consent, convener—Neil McLeod to take a legal perspective on the matter and give Mr Wightman the answer that he is seeking.

I echo the minister’s comments about the strict legal position. Under the order, Scottish ministers must give consent to any legislation that the UK Government takes forward, and a commitment has been given in the letter and reiterated by the minister today. Ultimately, one of the purposes of the provision that Scottish ministers give consent to the UK Government is to allow Parliament to hold Scottish ministers to account in whatever way it sees fit with regard to that consent. That is all that I can add.

But from a parliamentary point of view this is, in effect, the re-reservation of powers. After all, Parliament does not have any statutory right to be consulted or to have any say in the process by which ministers do or do not give consent.

Should it come to the point that either Scottish ministers or the Parliament were unhappy with how the arrangement was operating, it would be within the Scottish Parliament’s powers to remove the order, such that we would revert to the current position—that is, the status quo prior to the order being made. I would expect Parliament to hold Scottish ministers to account if we were failing to consult Parliament on changes that we agreed to with UK ministers. I am sure that Andy Wightman, among others, would be very vocal in making that point. Ultimately, the Parliament would have the power to revoke the order if it felt that it was necessary to do so.

I do not understand how Parliament would have the power to revoke or repeal an order. Proposals to repeal orders are ministerial powers, are they not?

Certainly. I will bring in Mr MacLeod on that.

I will address that point in a second. Earlier, you said that this was, in effect, a re-reservation of the powers, but it is certainly not that. The order is about a mutual conferral of functions to make winding-up rules. It is a very narrow area of executive competence and so does not affect what is or is not devolved.

On the Scottish Parliament’s ability to take back the order, once it is made the order stands and there are certain processes. As the minister has said, the Scottish Parliament absolutely retains the power to hold Scottish ministers to account for their actions in giving consent under the order. If the Parliament is not happy with that it can make its position known.

However, just to be clear, could Parliament revoke the order on its own initiative?

No, it could not.

Perhaps I can clarify that point. As I understand it, an undertaking has been given but you are not binding a future Scottish Government. Is that right?

You are right to say that I cannot fetter the decisions of any future Scottish Government ministers. However, the current Administration is giving a commitment to continue to consult the committee and Parliament on any changes in the future.

I want to go back to John Mason’s question and probe the question of conflict resolution a little further. If there is conflict between the UK and Scottish Governments about where power should lie, how is that conflict resolved?

I must emphasise that the instrument relates purely to winding-up arrangements. I cannot comment on wider arrangements for disagreements between UK ministers and Scottish Government ministers in respect of powers.

In relation to the order, any changes that are made by the UK Parliament that have a bearing on winding-up arrangements in Scotland would have to have the agreement of Scottish ministers. There is already a good degree of collaboration between the Administrations at the level of both officials and ministers. As I said, I cannot fetter the approach that future Administrations may take to engaging with UK ministers on those matters, but we currently have a very pragmatic working relationship.

As a minister, I assure Mr Leonard and other committee members that we are seeking to work collaboratively with UK ministers on the matter. There is no great bun fight on the issue of the powers involved. We are suggesting a pragmatic solution that is mutually supported by both UK and Scottish ministers to address the issue and ensure that there is clarity in the regulations in respect of winding up, without needing two separate statutory instruments to deal with the same matter. It is, in effect, a workaround to allow the Scottish Government to retain competency, while UK ministers retain competency in respect of issues that affect that.

I know that you are a very pragmatic and collaborative minister, Mr Wheelhouse.

Thank you very much.

In an era when people are talking about power grabs and so on, if there were a situation where the UK Government asserted that it wanted to re-reserve those powers and the Scottish Government’s position was to look for a mutual settlement under the terms of the Scotland Act 1998, is there any court of arbitration to resolve those disputes?

09:45  

I cannot answer a question on a legal perspective; perhaps you can confer with Mr MacLeod and Mr Reid on whether there is a court of arbitration in that sense.

However, this Parliament is established through the 1998 act. Powers in respect of winding up are not reserved in schedule 5 and therefore they are devolved. Clearly there would be a wider impact on the devolution settlement if an attempt were made to take those powers away from the Scottish Parliament.

We have found what I hope is a neat solution to a problem that is faced by insolvency practitioners and those who are affected by winding-up arrangements. I hope that it will be a workable solution.

Mr MacLeod might want to comment on the arbitration aspects.

With this order, we are not in the territory of re-reserving powers. The order is about how executive powers for ministers can be exercised in relatively narrow areas concerned with making procedural provision, in particular about how companies are wound up.

We move to the formal debate on the motion to approve the affirmative instrument. I remind the minister’s officials that they cannot partake in the debate directly but they can confer with the minister should it be necessary.

I invite the minister to formally move motion S5M-08086.

Motion moved,

That the Economy, Jobs and Fair Work Committee recommends that the Scotland Act 1998 (Insolvency Functions) Order 2017 [draft] be approved.—[Paul Wheelhouse]

Motion agreed to.

I also invite the committee to agree that the clerks and I will produce and publish a short factual report setting out what the committee has done on this matter.

As that is agreed, I thank the minister and his officials.

09:47 Meeting suspended.  

09:48 On resuming—