That the draft legislative reform order laid before the House on 4 December 2008 be approved.

Relevant Document: First report from the Regulatory Reform Committee.

My Lords, the order will amend the advertising requirements in the Insolvency Act 1986 in relation to voluntary liquidations. This House will already be aware of the real help that we are offering businesses and those struggling to make ends meet during this time of economic difficulty. The order will provide further help to business by reducing some of the costs associated with insolvency.

Before I set out what the order will do, I shall set out a brief history of it. The draft order was laid on 4 December 2008 using the affirmative resolution procedure. It was considered by the House of Lords Delegated Powers and Regulatory Reform Committee, which confirmed that it was content that the order should be allowed to progress as an affirmative instrument. The order was approved in the other place on 24 March.

I move on to the detail. When a company finds itself unable to pay its debts, a liquidator is appointed to find and distribute the company assets. Today’s order will deal specifically with voluntary liquidations. In a voluntary liquidation, a meeting of the company’s creditors must be called under Sections 95 and 98 of the Insolvency Act 1986. Notice of the time and venue of this meeting must be sent directly to all known creditors and advertised in the London Gazette and two local newspapers that are circulated in the area where the company has its principal place of business.

The order removes the obligation to advertise in two local newspapers and means that it will be up to the liquidator, under Section 95, or the company, under Section 98, to decide whether advertising is needed and, if it is, to choose the most appropriate method. It makes no change to the requirements to advertise in the London Gazette and for notices to be sent to all known creditors.

These amendments to the Act are expected to deliver some £3 million a year in savings to business. Associated changes are being made to the Insolvency Rules 1986. These will come into force on 6 April this year and are expected to deliver further savings to business of some £14 million a year.

Delivery of the advertising changes is the first step in a process to consolidate and modernise our insolvency legislation. That will be achieved by another legislative reform order, which we aim to lay soon, and further rules amendments. We brought this advertising order forward in advance of the wider reforms as we did not want to delay this useful measure. The savings to business expected from the remainder of the project are around £25 million per year.

The savings from this order arise in respect of the £600 per case that will no longer be spent in an estimated 80 per cent of voluntary liquidations. This will increase the pot of money available to the creditors, because there is no reason why the change should result in any increase in the costs of conducting the liquidation, including the fees of the liquidator.

Costs are not the only reason, however, for introducing the order. We also want to make sure that, where creditors’ money is spent, it is spent usefully. That could mean an advertisement in a local paper if the creditors are local. It could equally mean an announcement on a professional website or even a small slot on radio, if they are trying to reach a rural community.

The requirement to use local newspapers goes right back to the beginning of the last century, when those who dealt with a company usually came from the same part of the country, but we do not think that such assumptions still hold good. The chances of local newspapers reaching unknown creditors who are not, as is perfectly possible, based in the same part of the country as the company are very limited. We should not be surprised that the Insolvency Service’s consultation about this proposal found that, in around 98 per cent of cases, no unknown creditors came forward as a result of the advertisements. So, in the vast majority of cases, these advertisements served no useful purpose.

We have considered carefully whether this measure could be open to abuse. It could be argued that companies might wish to conceal their insolvency from their creditors and might be aided if there was no local newspaper advertisement. But adequate measures are already in place to guard against concealment of creditors and those safeguards will not be undermined by the changes that we propose.

The order will make a modest but useful difference to creditors who will have already suffered losses as a result of having dealt with the failed company. It will also give liquidators and companies greater freedom to target their advertising more effectively. During an economic downturn, we should do all we can to help business. It is for these reasons that I commend the order to the House.

My Lords, I thank the Minister for introducing this draft order. I am sure that many of your Lordships approve of measures to reduce red tape, so the Government are to be congratulated on at least trying. However, needless to say, there are one or two matters that I should like to raise. Before doing so, I ought perhaps to disclose that, at an earlier stage in my career when working in a major firm of chartered accountants, I worked in the insolvency field.

The House of Commons Regulatory Reform Committee expressed its surprise that the order was not more ambitious—even the Minister called it modest. The committee said:

“Given the widespread concerns about insolvency procedures … we believe that it would be more appropriate for the proposal to be considered together with the other proposals expected from the Department as part of the overall project to modernise insolvency legislation”.

Will the Minister provide an update on the status of these other proposals? The Minister in the other place mentioned—I think, in this context—what he called the “April-May timetable”. It is April, so why the rush with this subject in isolation?

According to the Department for Business, Enterprise and Regulatory Reform,

“LROs form a key part of the Government’s better regulation agenda”.

Yet while more than 1,300 statutory instruments are passed each year, just 20 LROs are scheduled to come into force in 2009. The Minister will accept, therefore, that we are more than a little sceptical of the Government’s robustness in this area.

The Regulatory Reform Committee’s concern at the narrow focus of the order might be said to corroborate a scepticism that this order is being introduced to make it look as though the Department for Business, Enterprise and Regulatory Reform is trying to be seen as fulfilling the mandate in the second half of its name, without adequate underpinning substance. Would the Minister care to comment on that? Does it not worry him that, if LROs are such a central plank of this important policy area, this particular LRO has been labelled by the Regulatory Reform Committee—a committee on which the Labour Party has an absolute majority of eight to six—as,

“so minor as to cause doubt as to its usefulness”?

In response to the government consultation document on the draft order, the Newspaper Society raised concerns that the proposals would discourage liquidators from using local newspapers. Have the Government considered this point and are they concerned by it?

The Department for Business, Enterprise and Regulatory Reform states that this order will result in annual savings of about £3.4 million. This figure is based on an estimate that 80 per cent of voluntary insolvencies will not need additional advertising beyond the London Gazette entry, because directors will hand over the books of account, which will contain a full list of creditors. The Regulatory Reform Committee labelled this argument “unconvincing”. Is there not a danger that, given that the firm is facing insolvency, the books will not have been as diligently maintained as they should have been?

Finally, the Legislative and Regulatory Reform Act 2006 holds that, among other conditions, a proposed change to the law must not deprive anyone of necessary protection. The Regulatory Reform Committee argues:

“We are not satisfied that the retention of requirements to advertise in the Gazette, even when taken with the availability of information from other sources including the internet, will necessarily protect”,

creditors. In the Minister’s view, is this order compatible with the 2006 Act?

My Lords, when I first looked at this comparatively modest and small document I was filled with that dread that usually comes across you when you think “It can’t be this straightforward, can it?” The Commons debates on the subject were prolonged and about procedural purposes, and I concluded that procedure was much more important than the Motion itself. The debate we had earlier about piracy and modern media suggests that the necessary duty to advertise an insolvency in two local papers may belong to another era. Advertising in other areas could be the way forward. However, as the noble Lord, Lord De Mauley, has suggested, it really does seem to be a small part of a package.

It would be interesting to know the timetable that the Minister envisages, and whether there are any other issues. What would be the duty to advertise and to take reasonable steps? Do the Government have any idea what that really means? How far are we going to go? What is envisaged beyond this? Just to reassure people—if you are ordering something online, are you going to be advertising online? The answer might come out. At the moment it could be read as simply taking away one thing that may not have hit many other people and giving a possible excuse for doing absolutely nothing.

My Lords, I thank noble Lords for their contributions to the debate. I sense some cynicism; perhaps we all become infected by it in the daily grind of politics, but I think that on this occasion it is misplaced.

On the question of this measure coming before other instruments, the next order is expected to be laid by the end of this month or the beginning of the next. A point was raised about the effect on newspapers. Clearly the order will have cost implications for the newspaper industry in terms of lost revenue. These will vary according to the number of insolvent companies in a local newspaper’s locality. However, it is important to note that the measure does nothing to stop companies and liquidators continuing to advertise in local newspapers. That, in the view of the liquidator, is the most sensible thing to do. We are giving the insolvency practitioner—the liquidator—the freedom to decide what is in the best interest of the liquidation, the companies and the creditors. Companies in liquidation can therefore choose to advertise in a local newspaper if they consider it appropriate, using the new technologies and websites that are available. We think that the new regime is preferable to retaining a legislative provision which means that local newspaper adverts must be placed in every single voluntary liquidation without consideration of their actual effectiveness. In the consultation, we found that in 80 per cent of the cases, no creditors came forward, suggesting that there would be some value in a change of regime.

I agree that this is a modest measure; the money amounts to only £3.4 million, but that sum will go to increasing the size of the pot of money available to creditors. The remuneration of insolvency practitioners, for example, has to be proved by the creditors; in that case, one can see no reason why costs should increase as a result of the change.

Insolvency practitioners are ultimately answerable to the court for the conduct of the case. They are experienced members of a regulated profession. A licensing body can, in appropriate cases, investigate concerns about their professional conduct. Unsecured creditors, which would include many small businesses, are treated equally among themselves. By changing the insolvency rules, the order seeks to improve the transparency for creditors and provide additional information.

If I have missed any points raised by noble Lords, I will happily write to them. There is some cynicism about this, but we have not taken the long-grass approach. We have promised—a promise we will fulfil—that further orders will be laid in a very short time.

This is a modest proposal; it could have been allowed to wait for several months more, but it will make a useful difference to creditors who have already suffered losses. Why should we not bring in a measure, however modest, which will save money and assist in very difficult times? It also gives liquidators and companies a greater freedom to target their advertising effectively; it could be argued that that is one area where business is increasing, unfortunately, as companies go into liquidation. Therefore, there is no argument for delaying something we can do now. For those reasons, I believe that the order can be helpful to the business community and to creditors. I commend the order to the House.

Motion agreed.