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This group of amendments tidies up clause 132 and also puts in place arrangements for the appointment of a provisional bank administrator. The amendments are similar to provisions previously discussed under amendment No. 158 for the provisional bank liquidator for the bank insolvency procedure, and they serve a similar purpose.
Amendments Nos. 163 and 164 are straightforward tidying-up provisions to include the phrases or administrators and or liquidators where required in the application and modification of existing provisions of the Insolvency Act 1986 to the bank administration procedure. That is necessary because clause 132 modifies various provisions of the Act in their application to the bank administration procedure. Those provisions refer to the powers of liquidators, as well as to the process of liquidation. The amendments simply reflect that.
Amendment No. 165 is another tidying-up provision, which corrects a conflict in the drafting. Clause 132, table 1, applies schedule B1(65)(3) of the Insolvency Act, and table 2 applies section 168(4) of the Act, both of which allow for the payment of dividends to creditors. However, section 168(4) allows a dividend to be paid to unsecured creditors at the discretion of the liquidator, while schedule B1(65)(3) requires an administrator to seek permission from the court before paying a dividend to unsecured creditors. It should not be necessary for the bank administrator to seek the permission of the court, since that would incur additional expenses for the creditors. Amendment No. 165 therefore removes the reference to paragraph 65(3). That sensible approach benefits creditors.
Amendment No. 166 is probably the most significant amendment in the group. It provides for the appointment by the court of a provisional bank administrator, following an application for a bank administration order. During the brief hiatus between the application for a bank administration order and the court hearing to make the order, it might be necessary for the residual bank to continue to provide services to the private sector purchaser or bridge bank. The appointment of a provisional bank administrator will facilitate that process and will also protect assets for the benefit of creditors in that initial brief period.
Following the making of the bank administration application, an interim moratorium will be in put in place to preserve the assets of the residual company. The court will also be able to appoint a provisional bank administrator where necessary, granting him or her powers to protect assets and manage the residual company in accordance with objective 1 of the bank administration procedure, which is to provide services to the bridge bank or private sector purchaser. The provisional bank administrator will not be entitled to pursue either strand of objective 2, and will not be allowed to make subsequent transfers, which means that the powers of a provisional bank administrator will be suitably restricted. Those are the equivalent powers that we were talking about in relation to the bank insolvency procedure. A typical activity that the provisional bank administrator might undertake would be facilitating access to e-mail or computer systems.
In effect, the role of the provisional bank administrator is simply to keep things ticking over for a few hours until the full court hearing for the making of a bank administration order. It is an important provision, which will minimise disruption and protect assets for the benefit of creditors, prior to the making of a bank administration order.
The provisional bank administrators appointment will lapse when a bank administrator is appointed, although there is nothing to stop him or her then being appointed as the bank administrator. In all cases, the provisional bank liquidator must be a qualified insolvency practitioner who consents to take on the role. Amendment No. 166 is a necessary provision, which protects the assets of the residual bank and allows for the provision of services to the private sector purchaser or bridge bank.
May I ask a question about amendment No. 166? I acknowledge the point made by the Minister, that the purpose of this provision is for someone to be in place to keep things ticking over for a few hours, as he described it, but what is the likely time scale? He referred to a few hours, but is there a maximum period for a provisional appointment? Can the Minister provide a firm reassurance beyond a few hours? I acknowledge the intention behind the amendment and it appears to be a useful addition, but it will be helpful if the Minister elaborates.
It would not be right to put a time scale on the face of the Bill, but clearly the policy intention is that a provisional administrator would keep things ticking over for a short period. I mentioned a few hoursit might be a few more hours than that, but it would not be a substantial length of time. The intention would be to move to a proper and full bank administration procedure as quickly as possible. Given that things can move extremely quickly, as we know, and that property and assets can be transferred quickly, once the decision has been made that a bank is failing its threshold conditions and action is being taken it is right that we do not leave a time window between a decision being taken and its being implemented.
I am grateful for the Ministers response and I understand why he does not want to be prescriptive, certainly on the face of the Bill, or to say much more than he already has about the length of time. As he said, objective 2 is disapplied, but will he assure the Committee that even though objective 2 does not applythat is, the rescue of the residual bank as a going concern to achieve a better result for the residual banks creditors as a whole than if it was wound up without bank administrationthe provisional administrator will do nothing to prejudice the objective 2 requirements?
It certainly is not the Governments intention that the provisional administration would do anything of the kind. In my opening remarks I mentioned facilitating the exchange of e-mails and such activities to ensure that we can have the properly functioning activities of a bridge bank and allow objective 1 to be pursued. We have been clear about the grounds for what a provisional administrator would be allowed to do, and amendment No. 166 makes clear the limited nature of what is proposed.
Amendments made: No. 164, in clause 132, page 65, line 34, after insolvency insert or liquidators)..
No. 165, in clause 132, page 68, line 27, at end insert
(b) Ignore sub-para. (3)..
No. 166, in clause 132, page 71, line 3, at end insert
(a) Treat the reference to the presentation of a winding-up petition as a reference to the making of an application for a bank administration order. (b) Subsection (2) applies in relation to England and Wales and Scotland (and subsection (3) does not apply). (c) Ignore the reference to the official receiver. (d) Only a person who is qualified to act as an insolvency practitioner and who consents to act may be appointed. (e) The court may only confer on a provisional bank administrator functions in connection with the pursuance of Objective 1; and section 125(2)(a) does not apply before a bank administration order is made. (f) A provisional bank administrator may not pursue Objective 2. (g) The appointment of a provisional bank administrator lapses on the appointment of a bank administrator..
The amendment relates to the applied provisions set out in the clause that would amend section 178 of the Insolvency Act 1986. Our concern is that the provisions amended by the Bill for the most part relate to administration, as one would expect given that the clause relates to administration. Section 178 of the 1986 Act relates to liquidation and specifically gives power to a liquidator to disclaim any onerous property. For those purposes onerous property includes
any unprofitable contract, and...any other property of the company which is unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act.
Why should that power of disclaiming onerous property be available to an administrator rather than a liquidator? I recognise that the power is only to be given with the Bank of Englands consent and exercised with that consent, but it does not seem appropriate to give the power of disclaiming onerous property to an administrator, especially given the protection for creditors in section 178(6) of the 1986 Act:
Any person sustaining loss or damage in consequence of the operation of a disclaimer under this section is deemed a creditor of the company to the extent of the loss or damage and accordingly may prove for the loss or damage in the winding up.
With an administration there may not be a winding-up, so that section does not fit well with the modification to it in clause 132. It would help the Committee if the Minister could explain why section 178 is amended and why it is necessary for an administrator to be able to disclaim property, given that as a rule administrators do not have that ability.
Amendment No. 179 would remove the ability of a bank administrator to disclaim onerous property. I shall set out why that ability is important and why we disagree with the amendment.
Onerous property includes unprofitable contracts and property that is unsaleable or not easily saleable, or that might give rise to a continuing liability. The ability to disclaim onerous property is a useful tool for the benefit of creditors, but it is normally availableas the hon. Gentleman saysonly to a liquidator. We have applied the provision to bank administration, with some modifications, as giving the bank administrator that power will help to achieve the best result for creditors. Many members of the insolvency community, including practitioners and lawyers, think that an ordinary administrator should also be able to disclaim onerous property, so it is sensible to apply such a provision, which benefits creditors, to the bank administration procedure.
The modifications in clause 132 are in line with the application of other powers that are normally available only to a liquidator, for example the ability to bring an action before the court for fraudulent or wrongful trading and to pay dividends to unsecured creditors without requiring permission from the court. Such provisions will ensure that a bank administrator has all the powers necessary to fulfil his or her objectives. The application of the liquidation powers, including the power to disclaim, will also help to ensure that the bank administration procedure is a cost-effective and efficient stand-alone regime, which operates in the best interests of creditors.
I thank the hon. Gentleman for his amendment because it has enabled us to look at why table 2 applies only to section 178 of the 1986 Act, and not the following four sections, which also deal with disclaimers. He has brought that point to our attention and we will look into it. If technical amendments are required to apply further provisions of the 1986 Act relating to the operation of disclaimers, we will consider how to deal with them. Any necessary amendments will, of course, be subject to normal scrutiny. I urge the hon. Gentleman to withdraw his amendment because it is sensible that bank administrators have that power, but we will look at whether we need to address in due course the issues raised by the amendment.
I am not entirely convinced by the Ministers argument that as some insolvency lawyers think that the power to disclaim onerous property should apply to administrators generally we should therefore apply it in these provisions. There may or may not be a case for general reform. However, I will not press for a Division; the Minister has given his explanation and it has been useful to highlight the matter. I beg to ask leave to withdraw the amendment.