Legislative Reform

It is good to be able to support many of the comments made by the Regulatory Reform Committee Chairman, my hon. Friend the Member for Ellesmere Port and Neston (Andrew Miller). As we have heard, we are not discussing one of those matters of national importance that we often debate in the House these days, but this subject still has a significant degree of interest. The Government's recommendations may not have a negative impact on millions of people, but those who do feel their impact will feel a little less comfortable with the whole voluntary liquidation process. We have already heard about the process set out in the order, so I shall not go into great detail about that, other than to say that the need to advertise in the London Gazette would stay, but—the bit that worries me—the need for local advertising would disappear, and be replaced with additional advertising as deemed appropriate in each case. As we have heard from my hon. Friend the Committee Chairman and my right hon. Friend the Minister, the Committee's first report of the Session concluded that the order had a narrow focus, with the possibly minor effects that have already been referred to. Given the wider concerns about insolvency, which were discussed in the Committee too, and the growing number of such cases in the current economic downturn, the sector should be subjected to a review, to modernise insolvency legislation, even wider than the one under way. That remains my belief, and the example that my hon. Friend the Member for Ellesmere Port and Neston gave about an insolvency in his constituency shows why the sector needs closer scrutiny. I do not doubt that the order will deliver minimal financial savings from the insolvent estate—the estimate is £600 per case. We have heard suggestions from Opposition Members about where that money might go. In my experience—to reinforce the comments of the hon. Member for Birmingham, Yardley (John Hemming)—it is unlikely to get into the hands of the unsecured creditors. Does the order remove a burden from the creditors? Indirectly. It removes a function from the insolvency practitioner, but whether removal of that burden—if we want to call it that—actually puts funds back into the hands of creditors, especially unsecured creditors, can never be measured. Perhaps I am being cynical, but my experience tells me that all too often no funds are available after the costs of the insolvency practitioner have been met. The result is that individuals and businesses who have lost money have little or no return. That is a real concern for me. There are other ways to deliver returns for creditors, such as maximum caps. As my right hon. Friend the Minister is aware, I tabled a parliamentary question on that matter, to which he courteously replied. There is much more we can do to focus on returning funds to creditors, secured and unsecured, beyond this narrow order. I understand that there is an obvious need for practitioners to be recompensed, otherwise there will be nobody to do the business, but apart from words said in this place, there seems to be little acknowledgement that the process is meant to benefit creditors. The process is not intended to keep insolvency practitioners in business and generate income for them. Unsecured creditors are the real victims in such cases. Recent reports of fees of £35 million for individual windings-up are mind-boggling, as were the numbers cited by my hon. Friend the Member for Ellesmere Port and Neston about the size of the insolvent estate in his example. The insolvency practitioner involvement that could deliver a £35 million winding-up cost is beyond my comprehension. I have never had an awful lot of confidence that an insolvency, voluntary or not, would generate much payback for my business. Many businesses the length and breadth of the UK will have similar feelings. The order retains the burden to send notices to all creditors and to update the insolvent company's website. I argue, as I did in Committee, that the removal of the need for local advertising is detrimental to small businesses and individuals securing information relating to the insolvency. We have heard from my right hon. Friend that the "burden" of the requirement to advertise locally only involves doing so in the local newspaper serving the area where the head office of the business is situated. I fully understand and accept that, but the House must grasp the fact that most insolvencies in the UK are not the size of Woolworths; they are local, and local papers provide a necessary flow of information to potential local creditors. As no other changes were proposed in the order, I found it peculiar that we were faced with it in the first place, and it is intriguing that we are now debating it on the Floor of the House. There have been representations about the revenue for local newspapers from advertising costs. I support the Newspaper Society's representations about that loss of revenue, but I could not argue solely on that basis that I was not content with the order. The order will remove the flow of information. It does not deliver more information, and that is what is needed. If I went to businesses in my constituency, or to people in the sector of which I have experience, and asked them if they knew about "the Gazette", they would obviously think that I was talking about some local paper. Most of them would have no comprehension of what the London Gazette is. Information needs to be more available, not less, and I do not think that that will be the result of the order. In a submission, we were asked to have faith in the accounting records of the businesses that are in trouble, and to rely on those accounting records to provide a full list of creditors. I question whether that is realistic. Businesses in trouble do not make record-keeping a priority. Staff are paid off, and jobs are merged. There is not enough time to do jobs fully. Short cuts are taken and there is often inappropriate behaviour. I urge the Department to grasp what goes on in such situations on the ground. The expectation that directors will co-operate with insolvency practitioners is fine; that is what we should expect. However, there are different levels of co-operation. Many directors also have limited knowledge of the operating processes of their companies. That applies particularly to basic housekeeping functions, such as the upkeep of sales and purchase ledgers. Those functions are vital in determining who is a creditor. Directors do not provide us with all the answers, and I say that having been a director for more than 20 years. I am unconvinced that the savings of more than £3 million will be delivered. I am uneasy about whether, in 80 per cent. of cases, no additional advertising would be required—but that is what will have to happen if we are to achieve those savings. We heard from the Minister about £17 million of savings more generally; those are in what is coming the Committee's way. However, this order relates to savings of £3 million. I can understand that in 80 per cent. of cases—the percentage of cases that will have to be affected if we are to generate the £3 million-plus of savings—those concerned would not get the additional advertising, but I am yet to be convinced that they do not merit it. To my mind, the order does not do anything to improve our insolvency practices, or to justify creditors' belief and hope that insolvency practices will deliver something for them. I share the Committee's view that it would be appropriate to review those processes fully. I am sure that if the order had been part of a Bill that improved those processes and therefore improved the return to creditors, particularly unsecured creditors, members of the Committee would have supported it wholeheartedly. However, as a stand-alone order, it leaves me a bit baffled. The fact that the insolvency sector is growing is a sign of our times, sadly. The fact that costs in the sector seem to be escalating should worry us all. I urge the Government to address some of the major concerns regarding costs, rather than focusing on the level of minutiae dealt with in the order.