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Leeds United Football Club

Volume 461: debated on Tuesday 12 June 2007

To ask the Secretary of State for Trade and Industry if he will assess the implications of Leeds United Football Club's move into administration for the effectiveness of the regulation relating to companies entering administration where a party involved in the decision to initiate the process has a commercial interest in the assets of the company. (141250)

[holding answer 11 June 2007]: I should state at the outset that the Secretary of State has no powers to impede a company moving into administration as this process is commenced by way of a court order or as a result of a qualifying floating charge holder, company or its directors filing a Notice of Appointment at court.

Administrators, as licensed insolvency practitioners, are regulated professionals and are obliged by law to perform their functions in the interests of the company's creditors as a whole. Accordingly, where there is a sale of assets to a connected party of the company in administration, the administrators will need to have satisfied themselves that they are not only achieving the best possible price in the circumstances but that it is an arm's length transaction. Such a sale is sometimes the best option for delivering value for creditors. The Secretary of State has no power to stop a sale and even if he did, such a power could harm the interests of creditors of the company, many of whom have already lost considerable sums as a result of the failure. It is only a creditor or member of a company in administration that can apply to the court if they consider the administrator is acting, has acted, or proposes to act so as unfairly to harm the interests of the applicant (whether alone or in common with some or all members or creditors).

I believe it is important to emphasise that in the specific case mentioned, the administrators agreed to the sale of assets on the condition that it would be approved by the body of creditors as part of a proposal to put the company into a Company Voluntary Arrangement (CVA) and that this arrangement was approved on 1 June by more than 75 per cent. of creditors in value.

This Government want to promote an effective framework for corporate activity, to give confidence to investors, business and other stakeholders. Within that framework it is essential that we have an insolvency regime, which, while encouraging enterprise and reducing the stigma associated with failure, deals fairly and effectively with financial failure and at the same time deters fraud and misconduct. I can assure you that we are fully committed to tackling abuse and misconduct and that we have in place, and in use, mechanisms to deal with that abuse.

You may be interested to know under the Insolvency Act 1986 (before it was amended) the only option to floating charge holders would have been to have put the company into administrative receivership. Under this procedure the administrative receiver's main duty was to the appointing floating charge holder. Under the provisions of the Enterprise Act this was amended to give the option of administration so that now the interests of the creditors as a whole are taken into account. The Insolvency Service is undertaking an evaluation to assess to what extent the provisions introduced by the Enterprise Act meet the policy objectives. The final evaluation reports will be published later this year.

I am therefore content that the existing regulatory framework is sufficiently robust to prevent abuse.