Official Report: Minutes of Evidence

The Chairperson (Mr Brett): Jack, you are welcome back again, sir. Thank you very much for coming along. Are members content that our friends in Hansard report the contributions?

Mr Jack Reid (Department for the Economy): Good morning. I have a presentation on the Bill. Would you like me to read it to the Committee?

The Chairperson (Mr Brett): Yes, please, if you do not mind.

Mr Reid: Before I commence my presentation, I thank you for the opportunity to update the Committee on the latest position on the Insolvency (Amendment) Bill.

I am a deputy principal in the legislation unit of the Department's insolvency service. I am responsible for carrying out the procedure for making the Bill. The director of insolvency, Richard Monds, who provided the previous briefings to the Committee, is unable to be present today as he is on prearranged leave. However, he sends his apologies.

You asked to be briefed about the Insolvency (Amendment) Bill. As you will recall, the Bill proposes to make miscellaneous minor amendments to update primary legislation dealing with insolvency and director disqualification and to make consequential amendments to one piece of subordinate legislation, that is, the Insolvent Partnerships Order (Northern Ireland) 1995. We briefed the Committee on two previous occasions on the matter. The first was on 5 June 2024, when Richard and I provided written and oral evidence in advance of a policy consultation's being carried out. The second was on 19 March this year, when we briefed the Committee on the outcome of the consultation.

First, I will bring you up to date on where we are with the Bill. Our Minister circulated a paper to her Executive colleagues on 6 May this year seeking agreement to the Bill policy and to the Bill's being introduced in the Assembly. The Executive considered the paper and provided their agreement on 5 June. The First Reading of the Bill will take place, as you mentioned, on 23 June, and the Second Reading is scheduled for 1 July. That, we hope, will facilitate the Committee's launching its call for evidence during July, with a view to concluding the Committee Stage by the end of October.

At our previous appearance before the Committee, we provided details on the public consultation and the contents of the Bill. We advised that only four responses had been received and that all were positive. We highlighted one minor concern that the Law Society of Northern Ireland raised during the consultation. That was about our proposal to alter the requirement in legislation for individuals who are made bankrupt on a creditor's petition to submit a statement of their affairs. As set out in the response that was sent to the Committee on 31 March, the information that would be in a statement of affairs is already in a more detailed questionnaire that each bankrupt completes. Accordingly, the Department remains of the view that the proposed change avoids duplication and represents a more efficient approach and more closely accords to what currently happens in practice. We will, however, continue to engage with the Law Society to resolve any concerns that it may have about our proposals.

There is no salient or overarching theme in the Bill. Its purpose is to determine whether small changes should be made to existing legislation that, as has been identified, would lead to improvements and efficiencies in processes and procedures. Making those improvements would benefit not only insolvency practitioners, who are the main users of the legislation, but creditors, the Department and its official receiver. There are 29 main amendments. We described those in detail in the written briefing that was provided to the Committee in June last year. Given the nature of the amendments and their technical complexity, it would be unrealistic to attempt to repeat that level of detail in the presentation. I will, instead, focus on a few of the main amendments.

There are amendments to strengthen existing provisions that are aimed at ensuring the continuity of supply of essential goods and services to businesses that are being kept open while insolvency proceedings are under way in an attempt to bring about their recovery or to facilitate their sale as a going concern. There are also amendments to make it easier for creditors and, in the case of companies, contributories, that is, mainly shareholders, to exercise rights that they have under existing legislation to make decisions about matters affecting the conduct of an insolvency.

The insolvency office holder, which the public would probably know better as, say, the liquidator or administrator trustee in bankruptcy, will no longer be allowed to call the creditors or contributories to a physical meeting to make decisions unless a specified number or percentage of them request such a meeting. The office holder will instead have to ask the creditors or contributories to make their decisions in ways that do not involve a physical meeting, such as in virtual meetings or by teleconference or correspondence. That will accommodate moving to the new age of technology. It will save the creditors and contributories having to incur the cost, in time and money, of travelling to a physical meeting and will save the office holder the cost of hiring premises for the event. Where a meeting of company members is required, there will be provision to enable that to take place remotely.

There are also amendments that are designed to streamline and remove unnecessary bureaucracy. For example, there are amendments to do away with the need for trustees and liquidators to obtain permission from creditors, the Department or the High Court to undertake certain actions. That includes, for example, taking legal proceedings to recover assets. They will now be able to go ahead and do that on their own initiative without having to seek permission. There is also an amendment to provide for the official receiver to become a trustee directly, on a bankruptcy order being made, without having to go through an interim period in a caretaker role as receiver and manager.

At present, when a Department is considering taking enforcement action against directors, it must channel all requests for information through the office holder, who is generally the liquidator or administrator. That represents an inefficient use of time and resources. The Bill will therefore introduce amendments to make it possible for departmental officials to obtain information about a company director's conduct directly from anyone who is capable of providing that information, including the director, without having to go through the insolvency office holder as a go-between.

Finally, the Bill will introduce amendments that will regularise matters between different insolvency processes. For example, the Bill will provide administrators with the same rights that liquidators currently have to bring claims against directors in order to recover compensation for creditors in cases where there is evidence of fraudulent or wrongful trading.

To conclude, the Bill's provisions are numerous and technical, but no radical changes to the current insolvency regime are proposed. Rather, the Bill is aimed at modernising and streamlining insolvency legislation to improve the efficiency of processes, remove bureaucracy for practitioners where that is warranted and improve the return for creditors.

Hopefully, you found the presentation informative. The Committee Clerk directed questions to me yesterday to which, I understand, the Committee would like answers. Do you want me to proceed with those questions now, or do you want to put questions to me in advance of my doing so?

The Chairperson (Mr Brett): Go with those ones first. That might cover them all.

Mr Reid: First, thank you for sending me the questions in advance. That has enabled me to give a more considered reply. I hope to provide satisfactory answers.

The first question was this: what Northern Ireland-specific changes does the Bill introduce that are referenced in the explanatory memorandum? In other words, how will insolvency matters in Northern Ireland differ from those that are in England and Wales as a result of the Bill's passage? Historically, it has been policy to keep insolvency legislation and, indeed, company director disqualification in parity with that applying in England and Wales. That was done with the wish of the Northern Ireland insolvency practitioner, and that policy has been approved of in the past by Members. The Bill is no exception. In England and Wales, it was identified that minor changes could be made to insolvency legislation that would improve it, and that has been done there. There is no reason to deny those changes to the insolvency profession here, and the Bill's purpose is to make the same changes that have benefited insolvency practitioners in England and Wales.

There are one or two matters on which we have diverged. First, I refer to clauses 103, 104 and 115. They are unique to Northern Ireland.

We identified the fact that there is a gap in the legislation. If a company is proposing or has decided to enter voluntary liquidation, there is no procedure in place to require the Enforcement of Judgments Office to be notified. It needs to be notified, because there are certain things that are required by statute to be done if those events happen. We have inserted into the Bill clause 103, which requires the Enforcement of Judgments Office to be notified of any proposal to wind up a company voluntarily. We have inserted clause 104, which requires the Enforcement of Judgments Office to be notified whether a resolution to have a company voluntarily wound up is passed.

We also identified that, under existing law, it is possible for a partner in an insolvent partnership to be disqualified if the partnership is being wound up but not if the partner has been guilty of misconduct and the partnership is subject to administration. We have inserted a provision to rectify that gap. That is clause 115, which provides for the replacement of article 16 of the Insolvent Partnerships Order (Northern Ireland) 1995 with a substitute that will make it possible for partners to be disqualified for misconduct where a partnership has entered administration, as well as where it has been wound up. That defect remains in the corresponding English legislation. I have spoken to officials in the Insolvency Service there. They agree that it is a deficiency, although they have not got round to rectifying it yet.

Are you happy enough with that answer, or do you have any comments on it?

The Chairperson (Mr Brett): I am happy.

Mr Reid: Right.

You asked whether all the measures in the Bill were part of the recent consultation, specifically those that remove the requirement for a final liquidation or bankruptcy meeting and replace it with a requirement to issue a report. That is in line with a point that I mentioned in my presentation, which is the policy of doing away with physical meetings. Yes, it was very much part of the policy consultation and is at paragraphs 17.1 to 17.6 on pages 30 to 31 of the policy consultation document. Are you happy enough with that?

The Chairperson (Mr Brett): I am happy.

Mr Reid: Right. OK.

You asked whether we covered in the consultation the provision that would allow for disqualification action to be taken where there is evidence of misconduct by the members of a partnership that has entered administration. The answer, again, is yes. That measure is given effect by clause 115, as, I think, I said in the presentation. It was mentioned at paragraph 28.1 on page 45 of the policy consultation document, which states that it was intended to amend the Insolvent Partnerships Order 1995 so that the same provisions in the Company Directors Disqualification (Northern Ireland) Order 2002 that apply when a partnership is being wound up as an unregistered company would apply where a partnership has entered administration. Article 16 of the Insolvent Partnerships Order 1995, as substituted by clause 115, applies the necessary provisions in the Company Directors Disqualification Order 2002 when the insolvent partnership enters administration. We said in our consultation that we have the ability, where a partnership has been wound up, to apply the Company Directors Disqualification Order, and that we now wish to have provision to apply it where a partnership has entered administration. So, yes, it was covered in the consultation.

You asked whether we consulted on the proposal to change the minimum level of debt at which it is possible for a creditor to petition to have a member of a partnership made bankrupt from £750 to £5,000. You frightened me with that question. I wondered whether I had included it in the consultation, but, yes, I had.

The Chairperson (Mr Brett): Excellent.

Mr Reid: That increase is made by paragraph 41 in schedule 4 to the Bill. The same increase has already been made in England and Wales. It was actually done by subordinate legislation there. It was a statutory instrument, but I will not bore you with its name. Yes, that was mentioned at paragraph 27.6 on page 45 of the policy consultation document. There is a list of amendments to the partnerships Order, and that is one of them. Are you happy enough with that?

The Chairperson (Mr Brett): Very happy.

Mr Reid: Good.

Your next question is, if you like, the converse. You asked whether that were measures that were consulted on that did not end up in the Bill. The answer is no. One of the matters that you enquired about is something that we mentioned in the consultation. We had intended to bring forward a provision to ensure that people who have been made bankrupt cannot act as insolvency practitioners. When I looked at that yesterday, I was not entirely clear which provision in the consultation document you were referring to. I think that it is proposed amendment 3 on page 17. Am I right about that?

The Chairperson (Mr Brett): Yes.

Mr Reid: Good.

The Chairperson (Mr Brett): You are always right, Jack.

Mr Reid: I will read out my prepared answer. I think that that is the easiest way.

The Chairperson (Mr Brett): Thank you.

Mr Reid: There is already provision in the Insolvency (Northern Ireland) Order 1989, which is the main primary legislation, that bars anyone who is bankrupt acting as an insolvency practitioner. We do not need to put a provision in, because it already exists. However, there is a complication attached to that. Article 349(4) of that Order states that a person is not qualified to act as an insolvency practitioner at any time if he has been adjudged bankrupt under that Order or the 1986 Act and has not been discharged. The 1986 Act that is being referred to is the Insolvency Act 1986, which applies in England and Wales. Under that, if you are bankrupt across the water, you cannot be an insolvency practitioner here. The problem is that the language that is used is no longer appropriate in the case of bankruptcy under the 1986 Act. That is because the 1986 Act applies in England and Wales, and it is now possible in England and Wales for persons to be made bankrupt of their own volition without being adjudged bankrupt by a court. In the case of bankruptcy under the 1986 Act, it would be better to say in the legislation, "made bankrupt", rather than "adjudged bankrupt". It was the need for that amendment that was being referred to in proposed amendment 3 in the consultation. The proposed amendment is effected by paragraph 18(3) of schedule 3 to the Bill. I have a note here of the legislation by which that corresponding amendment to refer to "made" rather than "adjudged" was made in England and Wales. However, I take it that you are not concerned with that detail.

The Chairperson (Mr Brett): That is perfect.

Mr Reid: No. Are you happy enough with that answer?

The Chairperson (Mr Brett): Very happy.

Mr Reid: Very good. I will answer your next question. There was mention in the consultation of an intention to allow a liquidator to sell or assign claims in respect of disqualification action against directors in relation to fraudulent trading etc, so did that end up in the Bill? The answer is yes. The insertion of new article 208ZD by clause 3 of the Bill would give liquidators and administrators the right to assign rights of action that can be taken against directors for various types of misconduct, including fraudulent trading. The Bill would give liquidators the right to sell those actions.

The next question was about how the consultation document said that we intended to disapply measures whereby directors of partnerships can be disqualified for breach of competition law. That was proposed amendment 29 in the consultation. I assure you that the Bill contains provisions to make that amendment.

The provisions in the Company Directors Disqualification (Northern Ireland) Order 2002, which make it possible for a person to be disqualified from acting as a director for a breach of competition law, are articles 13A to 13E. Those are applied by the existing legislation.

Article 10 of the Insolvent Partnerships Order (Northern Ireland) 1995 provides that, when a partnership is wound up as an unregistered company under Part 6 of the Insolvency (Northern Ireland) Order 1989, articles 3, 4, 9 to 14 and 18, 19, 21 and 23 in the Company Directors Disqualification (Northern Ireland) Order 2002 will apply. You actually list the articles in the disqualification Order that are to apply in the case of partnerships. The fact that articles 9 to 14 are in the list obviously takes in the provisions that deal with disqualification for breach of competition law, that is, articles 13A to 13E.

The way that the change to disapply the articles that deal with disqualification for a breach of competition law is made is to insert a revised list into the Insolvent Partnerships Order (Northern Ireland) 1995 that does not include articles 13A to 13E. Clause 115 of the Bill does the job by replacing article 16 of the Insolvent Partnerships Order (Northern Ireland) 1995 with a substitute, and the articles that it will list are 9 to 10A, 11A to 11C, 12, 14, 17A to 20 and 22 to 23A, which do not include the offending articles. That addresses that point.

Your final question was this: are the measures in the Bill or not in the Bill? The answer is that they are all in the Bill. That is the answer to that question.

That concludes my answers to those questions, unless the Committee has anything else that it wants to put to me.

The Chairperson (Mr Brett): What is meant to happen, Jack, is that you come along, I ask questions that you do not know the answer to and then I look smart and you do not. [Laughter.]

What has happened, however, is that you have come along and made us all look as though we are the ones who are not smart and you are right across it.

Jack, thank you very much. You have very eloquently and in detail answered all the Committee's questions. I think that you are due for a promotion. [Laughter.]

Mr Reid: Thank you.