50th Report, 2014 (Session 4): Legislative Consent Memorandum on the Small Business, Enterprise and Employment Bill

SP Paper 584 (Web Only)

DPLR/S4/14/R50

50th Report, 2014 (Session 4)

Legislative Consent Memorandum on the Small Business, Enterprise and Employment Bill

Remit and membership

Remit:

1. The remit of the Delegated Powers and Law Reform Committee is to consider and report on—
(a) any—
(i) subordinate legislation laid before the Parliament or requiring the consent of the Parliament under section 9 of the Public Bodies Act 2011;
(ii) [deleted]
(iii) pension or grants motion as described in Rule 8.11A.1; and, in particular, to determine whether the attention of the Parliament should be drawn to any of the matters mentioned in Rule 10.3.1;
(b) proposed powers to make subordinate legislation in particular Bills or other proposed legislation;
(c) general questions relating to powers to make subordinate legislation;
(d) whether any proposed delegated powers in particular Bills or other legislation should be expressed as a power to make subordinate legislation;
(e) any failure to lay an instrument in accordance with section 28(2), 30(2) or 31 of the 2010 Act; and
(f) proposed changes to the procedure to which subordinate legislation laid before the Parliament is subject.
(g) any Scottish Law Commission Bill as defined in Rule 9.17A.1; and
(h) any draft proposal for a Scottish Law Commission Bill as defined in that Rule.

Membership:

Richard Baker
Nigel Don (Convener)
Mike MacKenzie
Margaret McCulloch
Stuart McMillan (Deputy Convener)
John Scott
Stewart Stevenson

Committee Clerking Team: 

Clerk to the Committee
Euan Donald

Assistant Clerk
Elizabeth Anderson

Support Manager
Daren Pratt

Legislative Consent Memorandum on the Small Business, Enterprise and Employment Bill

The Committee reports to the Parliament as follows—

1. At its meeting on 19 August 2014, the Committee considered the provisions in the Small Business, Enterprise and Employment Bill1 (“the Bill”) that confer powers to make subordinate legislation on the Scottish Ministers.

2. The Bill was introduced to the House of Commons on 25 June 2014 and had its second reading there on 16 July 2014. It is a substantial UK Government Bill, sponsored by Dr Vince Cable, the Secretary of State for Business, Innovation and Skills. The Bill covers a range of matters much wider than those before the Committee for delegated powers consideration.

3. The draft legislative consent motion, which will be lodged by the Cabinet Secretary for Finance, Employment and Sustainable Growth is:

“That the Parliament agrees that the relevant provisions of the Small Business, Enterprise and Employment Bill, introduced in the House of Commons on 25 June 2014, relating to a range of measures on access to finance, data-sharing in education, and insolvency, so far as these matters fall within the legislative competence of the Scottish Parliament, should be considered by the UK Parliament.”

4. This Legislative Consent Memorandum (LCM)2 was considered by the Committee under Rule 9B3.6. The Committee is required to consider, and may report to the lead committee on, any provision in a Bill which is subject to a legislative consent memorandum which confers power on the Scottish Ministers to make subordinate legislation. As with bills passed by the Scottish Parliament, the Committee’s role is to consider whether it is appropriate in principle for the power to be delegated to the Scottish Ministers, whether the terms of the power are appropriately drawn and whether the level of scrutiny applied to the exercise of the power is appropriate.

Powers to make subordinate legislation

5. The powers in the Bill which confer delegated powers upon the Scottish Ministers are discussed below.

Clause 1– Power to invalidate certain restrictive terms in business contracts

Power conferred on: The Scottish Ministers
Exercised by: Regulations
Parliament procedure: Affirmative (clause 1(10))

6. Clause 1 provides a power for the “appropriate authority” to make regulations restricting the effect of terms in business contracts that restrict the ability of one of the parties to assign a right to be paid under the contract to a third party. (That right is known as a “receivable”).

7. The appropriate authority is the Secretary of State, except in relation to contracts to which the law of Scotland applies, for which it is Scottish Ministers. The explanatory note to the clause explains that businesses commonly obtain up-front finance against the value of unpaid invoices, assigning the right to the payment due under those invoices to a third party finance provider. Contractual terms which restrict the ability to assign rights to be paid have an impact on businesses’ ability to obtain finance in this way.

8. Sub-clause (1) enables regulations made under the power to make such terms ineffective, either generally or in relation to particular persons or for specified purposes. Sub-clause (2) defines the type of contractual term concerned. This covers terms which prohibit assignment or impose conditions or other restrictions on a contracting party’s ability to assign a right to be paid, whether under that contract or any other contract between the parties.

9. Sub-clause (3) sets out which types of contracts come within the scope of the power to make regulations. It applies to contracts for goods, services or intangible assets, where at least one of the parties is acting in the course of a business. Financial services contracts are excluded. (The definition of financial services contract for these purposes is set out in sub-clause (4) and clause 2, although the regulations are to prescribe the types of financial services contract which are excluded.)

10. Sub-clauses (7) and (8) provide ancillary powers for the Scottish Ministers to make provision in consequence of the regulations. These include the power to make transitional, transitory and saving provision and to amend, repeal, revoke or otherwise modify provisions made by or under an enactment (including an Act of the Scottish Parliament). This corresponds to the ancillary powers for the Secretary of State under clause 143.

11. The Committee finds the powers conferred on the Scottish Ministers in clause 1 to be acceptable in principle, and is content that they are subject to the affirmative procedure.

Clause 110 – Abolition of requirements to hold meetings: company insolvency
Clause 111 – Abolition of requirements to hold meetings: individual insolvency
Clause 112 – Ability for creditors to opt not to receive certain notices: company insolvency
Clause 113- Ability for creditors to opt not to receive certain notices: individual insolvency

Powers conferred on: The Scottish Ministers
Exercised by: Rules
Parliament procedure: Negative (sections 411 and 412 of the Insolvency Act 1986)

12. The LCM, in explaining these clauses, does not set out that they contain powers of the Scottish Ministers to prescribe matters in rules (by amendment of the Insolvency Rules.) Under the insolvency reservation in the Scotland Act 1998 (Head C2, Part II, Schedule 5), in broad terms the legal effect of liquidation and winding up of companies is reserved to Westminster, while the process of winding up, floating charges and receivership are for the most part devolved matters.

13. Clause 110 is intended, together with provision to be made in the rules under the Insolvency Act 1986, to facilitate the taking of decisions by a company’s creditors or contributories in the course of insolvency proceedings. The clause creates a ‘qualifying decision procedure’ so that decisions can be taken by means other than by convening a creditors’ meeting or contributories meeting as provided for in the rules. However, the possibility of a meeting is preserved if a prescribed proportion of creditors or contributories make a written request that the decision be made by a meeting.

14. The LCM explains that this provision is intended to pave the way for certain decisions to be taken by way of a ‘deemed consent procedure’, which is specified in clause 111. That is, a procedure whereby creditors or contributories are given notice of an intended decision, and are to be treated as having made that decision unless a particular proportion of them object.

15. Clause 112 makes provision which is intended to facilitate creditors’ opting out of receiving certain notices which in terms of the rules they would otherwise require to be sent, in cases where they have no on-going interest in the insolvency proceedings. (Such creditors being known as ‘opted-out creditors’).

16. Clauses 110-114 are with a view to increasing efficiency and reducing costs associated with insolvency proceedings.

17. Within those provisions as part of the company insolvency process, various matters are set out to be prescribed by the insolvency rules. So far as the making of these rules has been devolved to the Scottish Ministers, then by virtue of section 411 of the Insolvency Act 1986, they are made by the Ministers.

18. The Committee finds the powers conferred on the Scottish Ministers in clauses 110 to 113 to be acceptable in principle, and is content that the powers would be exercisable by rules subject to the negative procedure.

Clause 114 – Sections 110-113: further amendments

Powers conferred on: The Scottish Ministers
Exercised by: Regulations
Parliament procedure: Affirmative (clause 114(4))

19. Clause 114 confers power on the Scottish Ministers by regulations to amend the Insolvency Act 1986, to remove various requirements to hold meetings in insolvency proceedings. The power is related to the provisions in clauses 110-113 outlined above. For example, this enables the removal of requirements to hold meetings of creditors and contributories and to provide for decisions to be taken by either the ‘qualifying decision procedure’ or the ‘deemed consent procedure’ set out in those clauses.

20. Similarly, this clause enables the Scottish Ministers to amend the Insolvency Act 1986 to remove any requirement to send notices or other documents, in the case of ‘opted-out creditors’, who are provided for by clause 112 of the Bill.

21. The Secretary of State would make the regulations apart from in relation to Scotland. The Scottish Ministers would make the regulations in relation to the winding up of companies registered in Scotland, Scottish receiverships, and the administrative receivership of companies registered in Scotland.

22. The Committee finds the powers conferred on the Scottish Ministers in clause 114 to be acceptable in principle, and is content that they are subject to the affirmative procedure.

23. The Committee therefore reports that it is content with the delegated powers conferred on the Scottish Ministers in the Bill, and with the procedures to which they are subject.


Any links to external websites in this report were working correctly at the time of publication. However, the Scottish Parliament cannot accept responsibility for content on external websites.

1 Small Business, Enterprise and Employment Bill available here: http://services.parliament.uk/bills/2014-15/smallbusinessenterpriseandemployment.html

2 Small Business, Enterprise and Employment Bill Legislative Consent Memorandum available here: http://www.scottish.parliament.uk/LegislativeConsentMemoranda/SmallBusinessLCM.pdf

Produced and published in Scotland on behalf of the Scottish Parliamentary Corporate Body, The Scottish Parliament, Edinburgh, EH99 1SP by APS Group Scotland, 21 Tennant Street, Edinburgh EH6 5NA

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