Clause 12 — Insolvency

Scotland Bill – in the House of Commons at 8:18 pm on 7th March 2011.

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Votes in this debate

  • Division number 217
    A majority of MPs voted to return the responsibility for making laws in relation to certain elements of insolvency to from Scotland to the UK Parliament.

Question proposed, That the clause stand part of the Bill.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Scotland)

I support clause 12, but I have a couple of questions about its implications. As the Committee will be aware, this clause and attendant issues were the subject of detailed scrutiny by the Calman commission. It was corporate insolvency practitioners who pressed the case on that commission for introducing such a clause, which effectively re-reserves some aspects of corporate insolvency work.

The Scottish National party has responded with a blanket, knee-jerk reaction against the proposal, because it does not believe that powers should be re-reserved. The Labour party takes a different view. The Calman commission examined the range of powers as a whole, and determined which, in Scotland’s best interests, should be devolved and which should continue to be reserved. As we all know, it concluded that there should be some changes, but not too many. We accept that recommendation, and also the comments of the LCM Committee, but the

Scottish Federation of Housing Associations—from which Members will no doubt have received a briefing—has expressed concern about the implications for registered social landlords. Housing policy is, of course, devolved.

I am aware that, as no registered social landlords have been affected yet, the position is theoretical. However, on 25 February the Secretary of State told the convenor of the LCM Committee that the Government did not intend to cause any difficulty relating to housing policy, that they would consider introducing section 104 orders when that was necessary and appropriate, and that discussions were taking place between the Scotland Office and the Scottish Federation of Housing Associations. May I ask the Minister to confirm his intentions, so that we can ensure that the federation’s concern is not used unduly as an excuse to oppose the clause merely because it re-reserves a power, and that it is being dealt with?

Photo of Eilidh Whiteford Eilidh Whiteford Shadow SNP Spokesperson (International Development), Shadow SNP Spokesperson (Women), Shadow SNP Spokesperson (Work and Pensions), Shadow SNP Spokesperson (Agriculture and Fisheries)

I am glad to have an opportunity to respond to the amendment in a way that does not involve any sort of knee-jerk reaction. I intend to discuss the substance of the issue, which is the power to transfer power over all insolvency matters and all aspects of company liquidation back to the House of Commons. Currently, certain aspects are devolved.

When the Commission on Scottish Devolution examined the issue it identified some shortcomings in the existing set-up, notably a degree of overlap in responsibility between the rules relating to insolvency governed here and those governed in Holyrood, and a need for consistency across the United Kingdom. As many Members will know, the Calman commission responded to the concerns expressed by, in particular, the Institute of Chartered Accountants and the Law Society of Scotland by recommending that the United Kingdom’s Insolvency Service should be responsible for the rules to be applied by insolvency practitioners on both sides of the border, with the consent of the Scottish Parliament, and that the Scottish Parliament should retain its legislative competence over corporate insolvency.

Members will note that clause 12 goes way beyond the Calman recommendation. It would transfer powers over all aspects of company liquidation to the House of Commons. I urge the Committee to think very carefully about the clause, because I believe it is a rather blunt instrument which could have a number of undesirable and unintended consequences. I suspect that there is broad agreement in the Committee that the existing legislative framework pertaining to insolvency in Scotland could be strengthened and improved, but the real question is how we should go about it. Should we, as the clause suggests, simply re-reserve powers—which might be a quick and dirty way of dealing with the matter—or is there a better way of achieving the desired outcomes of consistency and efficiency?

I fear that clause 12 will create as many problems as it solves. We should bear in mind why the powers were devolved in the first place. The purpose was largely to take account of the distinctiveness of the Scottish legal system. When Professor George Gretton, the Scottish law commissioner and expert on insolvency, gave evidence to the Calman commission, he stated emphatically:

“Insolvency law has to fit in within the general corpus of the law, including such matters as the different court structures, the different systems of what Scots lawyers call diligence, the different systems of property law, and the law of voidable transactions.”

He pointed out that the aspects of corporate insolvency law that had already been devolved by the Scotland Act were pretty much aligned with the areas that were peculiar to Scots law. The issue was thought through carefully in the first place, and I feel that we too should think carefully before unravelling the existing provisions without taking account of the wider implications.The chair of the Scottish Law Commission, Lord Drummond Young, has also expressed concern about the implications for the sensible reform of Scottish commercial law, should these powers be re-reserved.

As Tom Greatrex has already pointed out, some of the deepest concerns about the consequences of the clause have been expressed by the Scottish Federation of Housing Associations, which has argued against it in the strongest possible terms. Members of that association own and manage 47% of Scotland’s affordable rented housing stock. They have an annual turnover of about £1 billion, and assets worth about £8 billion, so we should not take their concerns lightly. Housing is a fully devolved matter, and the Scottish Parliament has the power to legislate on all aspects of housing policy. There have been a number of changes to housing policy since the advent of devolution, as well as significant policy developments. This has been a dynamic area of activity in the life of the Scottish Parliament.

Back in 2001, in an amendment to the Scotland Act 1998, responsibility for legislation relating to the insolvency of social landlords in Scotland was devolved to the Scottish Parliament. The amendment order was agreed unanimously, with cross-party support, in the Scottish Parliament, and the provision was passed in Westminster. The amendment enabled the Housing (Scotland) Act 2001 and the Housing (Scotland) Act 2010 to address the potential insolvency of registered social landlords. The 2010 Act established the Scottish housing regulator as an independent body to safeguard tenants’ interests and regulate the financial well-being and governance of registered social landlords.

Assessing the risk of insolvency among registered social landlords is an integral aspect of the existing regulatory regime. The 2010 Act also gave additional powers to the Scottish housing regulator to act quickly when a registered social landlord was facing insolvency, thereby safeguarding the interests of tenants and of the wider social landlords sector. There have been no cases of insolvency among Scottish registered social landlords in the past 40 years, but those representing the sector are not at all complacent, given the economic environment in which they are operating and the experiences that they have seen in other parts of the UK. They believe that there needs to be provision for a regulatory authority to deal with such matters in a timely and appropriate way, should cases of insolvency arise.

The regulatory framework that has been established in Scotland is designed to reduce the possibility of a social landlord becoming insolvent by preventing the situation from occurring. I am sure that Members will appreciate the importance of that, not only for tenants and social landlords but for the wider housing sector and other stakeholders. In particular, effective regulation is crucial to the ability of registered social landlords to access lending at competitive prices. The Council of Mortgage Lenders made that clear in its response to the 2007 consultation, and it is estimated that Scottish registered social landlords have saved about £70 million in the past five years by being able to access lower lending margins than are available in the commercial sector.

All this provides a practical illustration of why a strong regulatory framework is important, and why these matters were devolved in the first place. We really should not be rash enough to dismantle that framework. We must also bear in mind the fact that, if we pass clause 12, any future measures relating to the insolvency of registered social landlords would require legislation at Westminster, with all the difficulties of securing time that that involves. We need to recognise the practical benefits of devolution in this area, and not try to reinvent the wheel in our efforts to tidy up the loose ends in the wider insolvency provisions.

In housing, there is a strong case for preserving the coherence and alignment of the legislative policy making and regulatory frameworks. This would be broken if insolvency powers over registered social landlords were to be re-reserved. If the main reason for clause 12 is to tidy up insolvency provision from a UK point of view, it would be most regrettable if it were to make housing policy significantly more untidy in the process. I have a real concern that, in time, such a dislocation of policy from regulation could lead to delays, fragmentation and inappropriate decision making. It would be a retrograde step, and it would reverse recent progressive measures that have had the support of the Scottish Parliament right across the political spectrum.

I urge Members to look again at this matter. We need modernisation of the insolvency provisions; that will be very welcome. This is not the way to do it, however. There are many ways of doing it, and key to the process will be better inter-governmental working. I would also draw the House’s attention to the Scottish Parliament’s Scotland Bill Committee, which took these concerns seriously and recommended that legislative consent on this clause should be subject to certain provisions being drafted. We are not in a position to see those provisions today, so I would urge Members to oppose the clause in the interim, until we have a workable and effective solution before us.

Photo of Michael Connarty Michael Connarty Labour, Linlithgow and East Falkirk 8:45 pm, 7th March 2011

I am pleased to follow Dr Whiteford, who has both conflated a lot of issues that are of obvious concern to her party and not been quite open about what happened on the Scottish Parliament’s Bill Committee. We have heard what seems to be a strange argument: the SNP is for devolution unless it does not win the vote, because on a devolved committee the SNP moved an amendment and lost. Then the committee concluded that it was

“content to recommend to the Scottish Parliament that it should give its legislative consent to the provisions in the Scotland Bill relating to the re-reservation of insolvency, subject to provisions being drafted which will secure capacity for devolved legislation to affect the winding-up of Registered Social Landlords”.

On the one hand the hon. Lady is conflating lots of issues of obvious concern to her party, but on the other she is denying the democratic process when it goes against her in the devolved Parliament.

The third thing that the hon. Lady has done is make a case as though that case were not recognised by everyone, on all sides, in the evidence given to this Parliament.

Hopefully, the Government are listening to that, and those on our Front Bench have stressed the same points. However, there is another fault that people show when trying to enthuse people—I think that the common phrase is “overegging the pudding”. There has not been a bankruptcy or insolvency of a registered social landlord in Scotland in 40 years, because of the way in which their arrangements are structured. I was active in the early days of the housing association movement as a leader of a council in Scotland. Across all the parties we created a structure that mainly secures registered social landlords from the problems experienced by those landlords who are thirsting for profit and therefore taking risks by borrowing and overextending themselves. Registered social landlords are to be commended because they tend not to get themselves into such situations, which is one of the reasons we set them up as we did.

Everyone takes seriously the point made by the Scottish Federation of Housing Associations, including those on our Front Bench and, I hope, the Government. Therefore, we should have the necessary safeguards to allow the points made by the SFHA to be taken on board. The SFHA is worried about the speed of action should there ever be a problem, and hopefully the final legislation will recognise that. However, we cannot conclude from this that we should therefore go against the recommendation of the Scottish Parliament’s Bill Committee and against common sense in having a system across the UK to address a problem that faces a lot of the corporate bodies and private organisations in the UK at the moment.

Photo of Eilidh Whiteford Eilidh Whiteford Shadow SNP Spokesperson (International Development), Shadow SNP Spokesperson (Women), Shadow SNP Spokesperson (Work and Pensions), Shadow SNP Spokesperson (Agriculture and Fisheries)

This is an argument that has come directly from the Scottish Federation of Housing Associations, which is concerned about preventing such problems from occurring in the first place. It is the SFHA that is worried about the environment in which it currently operates. I know that we will shortly debate housing benefit in this House, but one of the SFHA’s concerns is that changes to housing benefit could have serious repercussions for cash flow. It is concerned that the financial position is not as secure as it might have been. That is why we have to take this issue seriously. I wish that I could share the hon. Gentleman’s optimism, but hoping that something might come forward is no way to go through the parliamentary process.

Photo of Michael Connarty Michael Connarty Labour, Linlithgow and East Falkirk

Allow me to recommend that optimism to the hon. Lady, who is new to the House. That optimism, which I have carried with me for 18 years, might stand her in good stead if she survives as long as I have in this place. They do say—I am quoting Gramsci, the socialist—that pessimism of the intellect should breed optimism of the will. She will certainly require that again and again if she sits on the SNP Benches in this place, I can tell her that.

I am deeply involved in fighting a case involving a bad insolvency in my constituency. In a sense, I have had to step over a line that I have drawn for myself since devolution, where I have had to say, “This is not a matter for me: I have a remit as a UK parliamentarian and my colleagues”—Members of the Scottish Parliament—“have a remit devolved to them.” I try to keep the two apart quite strictly. I try to encourage devolved organisations to write not to me but to my MSP colleagues, and to engage them properly in the process. I was involved in the scrutiny of bankruptcy in Scotland legislation here in Westminster between ’92 and ’97, and knew quite a lot about that. I therefore find the current environment frustrating, as many companies are facing serious challenges because of economic conditions and are having to go through the insolvency process.

Although the case I took on involves what is currently a devolved matter, I knew that re-reservation was being reconsidered, so my conscience was somewhat assuaged. The reality is that the insolvency process is not very pleasant. It is never pleasant for people to be bankrupted or to have their goods and chattels sold by a bankruptcy administrator who seems to be their friend until the moment when they sign the form, and who then turns out to be their enemy. In the case I am currently involved in, there is a house for sale. The insolvency administrator has allowed it to be vandalised, so quite a lot of the financial benefit to the creditors has been lost, and seems to be ignoring any offer from anyone to buy the property.

This issue should be a responsibility across all the Chambers, and I think it makes sense for the same rules to apply in Scotland as in the rest of the UK. The Bill’s provisions would bring them into line. We should all realise that it does not matter which side of the border people are living on or trading in, and that they must be dealt with properly by the insolvency laws and its practitioners. I have serious reservations about the way they are currently regulated. I look forward to this being returned to being a reserved matter so that I can fully engage in it.

Photo of David Mundell David Mundell The Parliamentary Under-Secretary of State for Scotland

Clause 12 implements the Calman commission recommendation that the UK Insolvency Service should be made responsible for laying down rules to be applied by insolvency practitioners on both sides of the border. The commission was persuaded by evidence from stakeholders, including the Law Society of Scotland and the Institute of Chartered Accountants of Scotland, that a consistent approach to winding up would bring significant benefits to insolvency practitioners, creditors and others dealing with insolvent companies in both England and Wales and in Scotland. Many windings up involve groups of companies that operate on both sides of the border, and it will be more efficient in terms of both time and money if the same winding-up rules are applied to each insolvent company in the group, except where Scottish common law dictates otherwise.

As a result of the proposals, the reorganisation of groups of companies will be more efficient and lead to increased returns for creditors and shareholders. Group reorganisations may involve subsidiaries being wound up, and a common approach to winding-up rules would help reduce the cost and complexity of group restructuring where constituent companies operate in both Scotland and in England and Wales. In its evidence to the Calman commission, the Institute of Chartered Accountants of Scotland, which regulates most of the insolvency operators working in Scotland, highlighted the benefit of consistent rules in promoting a more stable environment for corporate recovery and turnaround.

Photo of Angus Robertson Angus Robertson Shadow SNP Spokesperson (Defence), Shadow SNP Spokesperson (Foreign and Commonwealth Office), Shadow SNP Westminster Group Leader

I am interested in what the Minister says about having the same rules across an economic single market. By that logic, is he arguing that this should be not a UK competence, but a European competence across the single market in which we all live?

Photo of David Mundell David Mundell The Parliamentary Under-Secretary of State for Scotland

I understand where the hon. Gentleman is coming from, and his party’s position in relation to matters European, which, as I understand it, would have Scotland as a member of the euro, which I steadfastly disagree with.

The Law Society of Scotland reported in its evidence to the commission that, because of the increased number of insolvencies of groups of companies, practitioners have for a number of years been having difficulties where parts of the group are subject to the English rules and part to the Scottish rules. The Calman commission was persuaded that a consistent approach should be taken to winding up rules, and the UK Government agree. The commission recognised that its first option for implementing its recommendation—UK legislation followed by a legislative consent motion—might not be achievable, so it suggested primary legislation amending the devolution settlement as an alternative means of securing the desired effect. The first option would not fully and effectively transfer legislative and Executive competence in this area, and that could result in continuing divergences in the rules. That would frustrate the objective expressed by the Calman commission, which is why we are adopting the second of the commission’s options and re-reserving the winding up of business associations in its entirety.

Schedule 2 is introduced by clause 12. Having just one Parliament responsible for the rules relating to winding up in Scotland will aid flexibility and responsiveness, and address problems that have been reported by insolvency office holders when the law changed in one jurisdiction but not the other. In fact, we are seizing the opportunity that the Bill provides to deliver for Scotland the benefits of modernisation changes, some of which have been in place in England and Wales—and for the existing reserved insolvency procedures in Scotland—for nearly two years. These changes lift administrative burdens by allowing insolvency office holders to make full use of advances in information technology made over the past quarter of a century to communicate with creditors, thus reducing the costs—for the benefit of creditors.

The changes were made to reserved insolvency procedures in Scotland in 2009 and 2010 by a combination of legislative reform orders and subordinate legislation, but because of the division of responsibility for rules between the UK and Scottish Parliaments the changes could not at that time be extended to windings up taking place in Scotland. That is an example of some of the unnecessary and confusing divergences that have developed between the two jurisdictions about which the Calman commission expressed concern. We are taking steps to address that concern and thereby ensure that creditors of windings up taking place in Scotland are able to enjoy similar benefits to those provided for creditors of windings up in England and Wales.

I wish to deal specifically with the points raised about registered social landlords. In that context, I fully agreed with the appraisal of the hon. Member for Linlithgow and East Falkirk (Michael Connarty) of the contribution of Dr Whiteford. I accept that she has legitimate concerns, which she raised in the Scottish Affairs Committee. As part of my appearance before that Committee, I undertook to meet representatives of the Scottish Federation of Housing Associations. I am pleased to report to this Committee, as I have done to the Scottish Affairs Committee, that that meeting has taken place and we were able to have a full discussion about these concerns.

The first and most important point is that no change to the Housing (Scotland) Act 2010 will be brought about by these measures. They will not change the provisions of that Act or the regime and regulator that were put in place; they will not change the insolvency processes envisaged by that Act. Part of the concern appeared to be about what happened if the insolvency procedures put in place by that Act did not work and had to be changed, and whether this House would be as responsive in dealing with those concerns as the Scottish Parliament. I know that the hon. Lady has a fundamental view about the balance between the former and the latter. However the experience of not just this Government, but the previous one, when Ann McKechin was in the Scotland Office and Tom Greatrex was aiding her, suggests that the UK Government have demonstrated a willingness to support the legislative intentions of the Scottish Parliament. The Insolvency Service is held in particular regard for the measures it has brought forward to modernise insolvency practice in areas for which it has responsibility in Scotland and, indeed, in England and Wales. I am pleased to report that the Insolvency Service will meet the Scottish Federation of Housing Associations at the beginning of April to discuss any specific ongoing concerns that might still exist.

Photo of David Mundell David Mundell The Parliamentary Under-Secretary of State for Scotland

Following our meeting with the federation, I wrote extensively on the specific points that I had raised. My interpretation concerned whether Westminster would be as responsive as the Scottish Parliament if new issues arose. It is extremely important to take on board that this is about new issues and not about the adequacy of the Housing (Scotland) Act 2010. That Act is in place, as are the arrangements for insolvency. The issue is whether, if the arrangements that have been put in place did not work and other arrangements had to be brought in, that could be done expeditiously in the House of Commons, and I believe it could. Indeed, one Opposition Member is the former distinguished Communities Minister of the Scottish Parliament and I cannot imagine that she would allow the Government to sit idly by while there were requests for changes to insolvency procedures in respect of registered social landlords in Scotland. That issue is not a basis for continuing concern, but we are committed to the dialogue involving the Insolvency Service and the federation.

It is important to re-emphasise the point that the hon. Member for Linlithgow and East Falkirk confirmed—that the Scottish Parliament’s current powers in relation to RSLs are not whole powers regarding RSL insolvency. They relate only to the winding up and only where it concerns a moratorium on the disposal and management of property held by an RSL, so the Scottish Parliament is not currently able to make provision for all aspects of the law on RSLs. The view of the Calman commission was that the ability to make provision in this area was fragmented and should be returned to Westminster to deal with that fragmentation. Clearly, there are Members who could never agree with the return of powers to Westminster, however sensible that might be, but I hope that on this occasion they will accept that the measure will benefit Scottish business and will not be detrimental to the RSL sector. On that basis, I hope that the Committee will not divide on clause 12.

Question put, That the clause stand part of the Bill.

The Committee divided:

Ayes 357, Noes 8.

Division number 217 Scotland Bill — Clause 12 — Return of Certain Insolvency Powers from Scotland to the UK Parliament

A majority of MPs voted to return the responsibility for making laws in relation to certain elements of insolvency to from Scotland to the UK Parliament.

Aye: 357 MPs

No: 8 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Absent: 280 MPs

Absents: A-Z by last name

Question accordingly agreed to.

Clause 12 ordered to stand part of the Bill.

Photo of Thomas Docherty Thomas Docherty Labour, Dunfermline and West Fife

On a point of order, Mr Benton. You might not be aware, having been in the Chair, but apparently the Scottish nationalists have been tweeting tonight that Labour MPs voted not to devolve Government responsibility to the Scottish Parliament. I would be very grateful if you advised me what we as MPs can do to ensure that all SNP Members are aware of the actual facts, rather than just twittering.

Photo of Joe Benton Joe Benton Labour, Bootle

I have heard the point of order, but as it is not a procedural point I cannot rule on it. I am very sorry.

Schedule 2 agreed to