Plenary, 17 Apr 2002

Meeting date: Wednesday, April 17, 2002

Official Report 417KB pdf

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Enterprise Bill

The next item of business is a short debate on motion S1M-2983, in the name of Jim Wallace, on the Enterprise Bill, which is United Kingdom legislation.

I would like to explain why we are recommending a Sewel motion in relation to part 10, clauses 239 and 241, of the Enterprise Bill—noted as part 8 in the memorandum—which was introduced in the Westminster Parliament on 26 March. I will explain why we have given the UK Government our support on the bill and why we have co-operated on the corporate insolvency aspects.

The bill is a substantial piece of work. The ground that it covers is mostly reserved, and I shall refer only briefly to those aspects. The aim of the Enterprise Bill—and the aim of the budget that is unfolding—is to improve productivity and competitiveness through reform of the UK's competition, insolvency and consumer protection regimes; to facilitate the rescue of companies; and to provide certainty and fairness to creditors and other stakeholders.

The first nine parts of the bill relate to the establishment of the Office of Fair Trading, the Competition Appeal Tribunal, a new merger regime and new market investigation arrangements, as well as miscellaneous competition provisions and consumer legislation matters.

Our focus today is on part 10 of the bill, which deals with insolvency. In this part, as well as proposals for change in relation to the law governing corporate insolvency, the bill sets out new regimes for personal bankruptcy. However, personal bankruptcy in Scotland is a devolved matter and is not covered in the bill. We will be consulting in Scotland on possible reforms to that aspect of the law in due course.

The core of the debate today is the changes that are proposed to corporate insolvency law, which again is largely a reserved area. The changes seek to abolish the Crown's preferential right to recover unpaid taxes ahead of other creditors; to provide for a new regime for company administration; and to restrict the future use of receivership which, except for existing arrangements, will remain only for the financial markets, as set out in the explanatory note.

I now come to the aspects of the bill that require the agreement of the Parliament. Administration is reserved, but receivership is devolved. It might be helpful if I explain briefly the difference between administration and receivership. Administration is a comparatively new procedure, introduced in 1986 to facilitate company rescues by giving companies protection from their creditors while they are restructured and, it is to be hoped, saved. Members may know about chapter 11 bankruptcy in America, which is a similar procedure. Receivership, in contrast, is the mechanism by which a floating charge holder—usually a bank—enforces a security by seizing the assets of the company where there has been a default on an overdraft or loan.

The first step in the proposed reform is to streamline administration to make it quicker, more flexible, easier to access and fairer. The bill does so by providing out-of-court routes into administration for floating charge holders and for companies and their directors.

Some concerns have been raised by practitioners about the court part of administration, and about the fact that we may end up with a centralised system somewhere in Scotland. Can the minister assure us that in his discussions with those who are responsible at Westminster for the Enterprise Bill, he will ensure that court procedures will be dealt with through sheriff courts, which will allow local decisions to be made, rather than by setting up a national court for Scotland to deal with these matters?

I thank the member for that point, which I will address in summing up.

That is fine.

The bill removes the need for a court hearing in most instances. We hope to reduce court involvement. It should also enhance accessibility and reduce costs. It removes bureaucracy and introduces clear time limits, so that administration is concluded quickly. It creates simpler and clearer objectives of administration that promote company rescue or, when that is not reasonably practicable, produce a better result for all creditors. If neither of those objectives is reasonably practicable, an administrator can realise a company's property to make a distribution to one or more secured or preferential creditors. The amendment of the administration process strikes a fair balance between the interests of all creditors. The changes in the Crown rules contribute to that.

The bill requires the use of the administration procedure by creditors who would previously have been entitled to appoint a receiver. It will ensure that all reasonably practicable options are considered, but without prejudicing the interests of floating charge holders.

The result of the changes is to shift the balance from a situation in which effective control is placed in the hands of a single secured creditor to one that takes account of the interests of unsecured creditors. In the place of receivership, the new system for administration will be an effective tool in encouraging company rescue.

The Enterprise Bill contains provisions that affect the devolved matters of floating charges and receivers as part of a wider package of rules that is aimed at promoting the law on administration. The Scottish Parliament could not legislate on the new administration regime, which dovetails into the new restricted receivership regime, so the Executive's view is that the simplest and most effective route is to legislate through the Enterprise Bill.

Although the Enterprise Bill as a whole relates to reserved matters, the corporate insolvency provisions cover devolved aspects of the law. The devolved matters are embedded in a wider package of provisions that will reform the reserved matter of administration. That is the basis for taking the Sewel motion approach to the bill. The bill modernises insolvency law, and we agree with the UK Government that, by doing so, it will improve corporate rescue.

I move,

That the Parliament agrees that provisions in the Enterprise Bill that relate to the devolved matter of receivership should be considered by the UK Parliament.

The SNP broadly supports the thrust of the Enterprise Bill, which is to deal effectively with anti-competitive practices. The introduction of sanctions on individuals who breach competition law is welcome, as is the widening of rights and powers for competition authorities. I like the clout that is to be given to consumer organisations to present cases for competition investigation—so-called super-complaints, which the Office of Fair Trading will prioritise. Those organisations will also be empowered to bring representative actions on behalf of groups of consumers. That is good.

The SNP also agrees with the abolition of the right of a floating charge holder to appoint an administrative receiver. Too often, companies that might have survived or been sold after a period of administration have been put in the hands of receivers whose primary duty is to recover debts that are owed to floating charge holders, which are invariably banks. That measure will also ensure that all creditors—not just banks—are treated in a fairer and more equitable way. In worst-case scenarios, it should help to reduce the domino effect on businesses that supply a company that goes bust.

However, the SNP has a problem with the apparently arbitrary nature of what has and has not been devolved. By and large, insolvency is reserved, along with the rest of company law, but my understanding is that all forms of security, including floating charges, are devolved. The SNP believes that company law should be devolved, as should be all the other powers that are required to make the Scottish economy successful, instead of languishing as it is under Westminster control. That is a good note to close on.

The member caught me out by undershooting his time.

By way of a preliminary comment, I observe that the bill is rather quaintly termed. Following the bill's appearance at Westminster, the public perception of it has not been flattering. It purports to be an Enterprise Bill, but it has been described as a candy-floss measure. Indeed, the Confederation of British Industry considers the title of the bill to be something of a misnomer. I realise that the minister has limited influence on the terminology of legislation down south, but it is important that the minister and his department keep in mind the Scottish dimension that will be affected by the bill.

The Conservative party endorses the principle of the motion that there should be UK-wide consistency on such matters and, in particular, on the issue of receivership. This afternoon, I spoke with the Law Society of Scotland. It is the desire of the Law Society to lodge amendments to the bill. It is important that, during the progress of the bill at Westminster, the minister facilitates and co-ordinates the involvement of the Law Society and the Institute of Chartered Accountants of Scotland, should it wish to be involved. It should not be the case that everything is passed to Westminster and the Scottish Executive and its enterprise department keep their distance. The bill has integral features that affect directly the facility of commerce in Scotland. It is important that the Scottish Executive maintains a knowledge of and an interest in the changes that may be made to the bill.

The Conservative party supports the motion, but its support is subject to the matters that I have set out for the minister.

I too welcome the introduction of the bill, which seeks to encourage entrepreneurship and strengthen consumer protection. In many ways, the manner in which the bill is being dealt with in the chamber reflects the importance of Scottish MPs in the House of Commons doing an appropriate job of scrutinising Government proposals. I am sure that those who believe that the bill has and will have a profound effect on Scottish business and on insolvency law will make full use of their representatives in the Westminster Parliament. To do so will ensure that the bill is scrutinised adequately and amended appropriately.

The role of the Office of Fair Trading is a matter that is reserved, but I hope that that role is considered actively by MPs. Those of us who represent rural parts of Scotland have felt some disquiet about some of the issues surrounding the role of the Office of Fair Trading. I hope that there is an opportunity to examine that role.

In the minister's opening remarks, he mentioned in some depth the important insolvency provisions in part 10 of the bill. I am sure that he and his department will reflect on the significant differences in the way in which receivership and administration operate north and south of the border so as to ensure that, where appropriate, differences are reflected adequately in the final bill.

I want to make a general point about Sewel motions. It is clear that we are considering the bill in its current form. However, if the bill were to be amended, which is not impossible to imagine in the Westminster context, what mechanisms are open to the minister that will ensure that the Scottish Parliament can fully take into account amendments that may be lodged at Westminster? We should be able to scrutinise the final bill.

We move to the open debate. Two members wish to speak and I can give them each three minutes.

I also welcome the Enterprise Bill that is currently before the House of Commons. The bill was designed to boost enterprise and competition in Britain, to make us more prosperous. The Labour party's 2001 manifesto set out that the party would extend our fair and robust competition regime. The manifesto further set out that that would be done by giving the competition authorities more independence; by toughening the laws on rogue traders; and by reforming the bankruptcy laws to ensure second chances for people who become bankrupt through no fault of their own. Those provisions are included in the bill.

The Sewel motion that is before us this afternoon makes specific mention of the part of the bill that governs receivership. The use of administrative receivership, which places effective control in the hands of a single secured creditor, will in future be restricted. That means that the balance will be shifted in favour of a streamlined administration procedure, which will facilitate company rescue where that is reasonably practicable and ensure that account is taken of the interests of all creditors, including small firms. That is important. As the minister explained, although it would have been possible for the Scottish Executive to legislate itself to restrict receivership—that power is devolved to the Scottish Parliament under schedule 5 to the Scotland Act 1998—it makes more sense for that aspect to be covered by the Sewel motion. It ensures that the changes dovetail with the new administration regime that is contained in the Enterprise Bill.

I welcome the bill. Facilitating the rescue of companies, where that is reasonably practicable, and not driving them to the wall unnecessarily is good for business. If it is good for business, it is good for Scotland.

I call Alex Neil. You have four minutes.

Thank you, Presiding Officer. I am sure that I will not need all of them.

I want to put the importance of the Enterprise Bill into perspective. About 75 per cent of the businesses operating in Scotland are not incorporated, which means that the bill's provisions, although extremely important, apply only to about a quarter of all businesses in Scotland. I hope that, when he winds up, the minister will give us a timetable for the review of individual insolvency laws in Scotland. I am sure that he is aware of the representations made to the Executive by the Entrepreneurial Exchange and many others about the need for a comprehensive reform of the personal insolvency laws in Scotland.

It is always very difficult to achieve a balance between the needs and rights of the businessperson and the business and those of the creditors. Certainly the regime in the United States does not make being unsuccessful in business such a great personal humiliation, whereas the laws in this country are based on classing people whose businesses become bankrupt or insolvent almost as criminals. We must take a different approach in Scotland, not because we do not want to protect creditors but because we need to redress the balance which has perhaps gone too much the other way. We welcome the fact that the Enterprise Bill will do so.

The other major provision that we should welcome is the removal of the Crown's preferential right. It has always been a source of great animosity in the business community that whenever a problem arises with a business, the VAT man and the Inland Revenue have first call on its resources. That has had two effects. First, many in the business community feel that some businesses have been brought to the point of bankruptcy by the harsh regime of the Inland Revenue and Customs and Excise at a very premature and sometimes unnecessary stage. I hope that one of the bill's major impacts will be to address that situation.

Secondly, the fact that such large organisations have first call on the resources of a failed business causes great resentment among all its other creditors. Indeed, we have often seen the Inland Revenue and Customs and Excise receiving cheques while small businesses go to the wall because another business has gone to the wall.

I am sure that Alex Neil would not want to end his speech without recognising the advantages that are being afforded to Scotland's small businesses even as we speak through the measures on VAT streamlining being announced in another place. I would be interested to hear whether the nationalists welcome those measures.

Actually, one of the measures that the Chancellor of the Exchequer announced in the budget this afternoon is extended bad debt relief for VAT payments. I hope that that measure will be part and parcel of a similar strategy here. I also hope that the additional 10 per cent in North sea oil revenues will be spent in Scotland this time instead of wasted south of the border.

I have finished my speech, Presiding Officer.

Thank you for that information. I call Richard Simpson to wind up.

This has been a useful, if brief, debate. I particularly welcome the general support for the measures from all parts of the chamber and, despite some slight reservations from my nationalist colleagues, the acknowledgement that a Sewel motion is important on this occasion because of the interlinking between aspects of administration and receivership.

I welcome Adam Ingram's support, particularly for the changes in administration, which are important. We could debate at length the divisions in the Scotland Act 1998 between reserved and devolved matters, but in this case we are dealing with the outcome of that act in an appropriate way.

The minister may be aware that an order in council was used in June 2001 during the passage of the Housing (Scotland) Bill to reverse some insolvency legislation and to bring back to Scotland some powers on insolvency in relation to registered social landlords and receivership. Where in the jigsaw of insolvency does the balance now lie?

The balance has not changed in the Scotland Act 1998. Receivership matters still lie with the Scottish Parliament and administration matters lie with the Westminster Parliament. That has not fundamentally changed, but there will be areas around any boundary that require discussion.

The bill aims to reinforce the matter of administration and to ensure that companies are indeed given the opportunity to survive, change and develop, rather than being put into receivership by the primary creditor or floating charge holder, which was the position before. There are no fundamental changes, but we need to watch what happens at the edges very closely to ensure that things are working in the best interests of businesses in Scotland, and indeed in other parts of the UK.

Rhona Brankin reflected the views of all speakers in the chamber when she said that the benefits of the bill are to improve the chances of rescuing companies. Alex Neil drew attention specifically to the question of the Crown's preferential treatment and how damaging that has been on occasion.

The Federation of Small Businesses said:

"We are particularly pleased with moves to abolish the Crown's preferential right to recover unpaid taxes ahead of unsecured small businesses. Whilst this will cost the Treasury around £90 million,"—

I think that £70 million is probably nearer the mark—

"it does mean that the small firms sector will benefit by the same amount, thus giving small businesses more chance to survive and prosper."

It went on to say:

"We do not see anything controversial in these proposals and would urge all party support".

The FSB will be pleased that we have a measure of universal agreement in the chamber this afternoon.

It is interesting to note that, in the initial debate on the bill, there was considerable concern about the primary creditor or floating charge holder, which is usually the bank. A bank's situation would be substantially undermined by the new provisions, but the British Bankers Association said in a letter of 26 March to the Secretary of State for Trade and Industry:

"We have enjoyed a dialogue with your Department in which we have had the opportunity to explain how banks attempt to rescue businesses in severe difficulty … The Enterprise Bill published today reflects that dialogue."

We have managed to achieve a unique situation, as the Federation of Small Businesses and the British Bankers Association both agree.

As the FSB represents many unincorporated businesses, will the minister tell us when he hopes to complete his review of the personal insolvency laws?

The Executive will review the current law, consult interested parties such as the Law Society of Scotland and publish a consultation document. I am sorry that I cannot give a date for that, but it will be in our diary and is under review. Once consultation has taken place, we will move, probably during the course of the next session when we can find time in the legislative framework.

In response to her concerns, I can tell Annabel Goldie that officials from my department have already met the Law Society of Scotland on at least one occasion and will do so again. The Law Society expressed no specific concerns about the bill to my officials. If Miss Goldie is aware of specific concerns, I would be grateful if she could communicate them to us so that we can continue the dialogue that will undoubtedly take place. Officials in Scottish departments are in close contact with their counterparts at Whitehall on the effects that the bill might have.

Tavish Scott raised a more general question about Sewel motions, which I have to say concerned me when I was a back bencher. Problems have occurred on at least one occasion. The procedure is clear. If there is a substantial amendment to what the Parliament has approved, the Executive or an Opposition party should raise the matter in the chamber and lodge a fresh motion. If there is a substantial change, that must be done. I do not expect a substantial change in respect of this Sewel motion, but if there is, I am sure that Tavish Scott will advise me or Jim Wallace and we will take the appropriate action.

The minister should wind up.

The Executive thinks that there must be a level playing field for enterprise in the UK. The bill provides an opportunity for that and the Sewel motion allows us to retain the integrated system of administration and receivership. We believe that the changes are important to Scottish business and to business in the rest of the UK.