Corporate Insolvency and Governance Bill
Wednesday 3rd June 2020
(3 years, 10 months ago)
Commons ChamberRead Full debate Corporate Insolvency and Governance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 3 June 2020 - (3 Jun 2020)
The Secretary of State for Business, Energy and Industrial Strategy (Alok Sharma)
I beg to move, That the Bill be now read a Second time.
On 23 March, the Government requested many businesses to close their doors to safeguard the nation’s health. We absolutely recognise the huge sacrifices that this entailed. My right hon. Friend the Chancellor, who has been at the Dispatch Box on a number of occasions, has outlined the unprecedented economic support for businesses and workers across the country.
Like the shadow Secretary of State, the right hon. Member for Doncaster North (Edward Miliband), I have regular conversations with businesses, business representative organisations and trade unions, and I know that the scale of what the Government have done has been appreciated across the board. We have supported millions of businesses and individuals through a range of support schemes. These have included grants to small businesses—over £10 billion out of the door now —loans, through the coronavirus business interruption loan scheme and coronavirus large business interruption loan scheme, and bounce-back loans, with more than £14 billion now paid out, as well as business rate holidays, tax deferrals, the job retention scheme and, of course, the self-employed scheme. By any international comparison, the effort that has been put into supporting businesses and individuals to safeguard lives and livelihoods is incredibly favourable.
Alongside those fiscal measures to support businesses and individuals and protect livelihoods, in this Bill we want to provide further support: non-fiscal measures to ensure that we can help businesses at a time of difficulty.
Ian Paisley (North Antrim) (DUP)
Is the Minister satisfied that the measures being proposed today could expire within 27 days? Is that sufficient time to address the problems that might be coming down the track?
Alok Sharma
As ever, the hon. Gentleman raises an incredibly important point. I will talk further about this, but that is precisely why we have ensured an opportunity to extend the temporary measures in the Bill, but by regulation, so statutory instruments will have to be laid before the House. However, I am sure that the sentiments he expresses are felt across the House. If we need to, I am sure that we will collectively look to extend some of the temporary measures to continue to help businesses.
The Bill will allow business owners time and space to explore rescue options. It will allow directors of companies that are technically insolvent, but simply because of a temporary drop in demand caused by the covid-19 crisis, to proceed with the business without the threat of personal liability. That has been incredibly warmly welcomed by businesses and business representative organisations.
Jacob Young (Redcar) (Con)
Does my right hon. Friend agree that this Bill will give businesses in Redcar and Cleveland and across the country the much needed breathing space to get through this crisis?
Alok Sharma
My hon. Friend is already making a huge impact in supporting businesses in his constituency, and he is absolutely right. The whole point of these measures, both permanent and temporary, is precisely as he says: to give businesses the breathing space to allow them to see whether they can recover and ultimately bounce back. That is what we all want to see.
Gary Sambrook (Birmingham, Northfield) (Con)
Unfortunately, some businesses fail. In my constituency, MG Rover collapsed 15 years ago, ripping a huge hole in the community in Northfield and Longbridge. Fifteen years on, over 6,000 people are owed money from the liquidation of MG Rover. Will my right hon. Friend look into ways in which we can speed up the process—15 years is too long and causes a lot of problems and anxiety for people—so that they can get closure and the money that they are owed.
Alok Sharma
Again, the manner in which the debate has begun demonstrates the consensus on supporting businesses, not just in our individual constituencies but across the country. I can give my hon. Friend a commitment that I am happy to meet him to discuss the case and see what more can be done. He is absolutely right—where we are able to, we must seek to speed up and provide that support to individuals who need it.
The Bill will provide extra flexibilities to hold AGMs online during the covid-19 pandemic and will also provide more time to file accounts and other filings with Companies House.
Paul Holmes (Eastleigh) (Con)
May I ask the Secretary of State whether companies have to apply for those extensions on filing, or will there be an automated aspect whereby Companies House will approach the companies affected?
Alok Sharma
Once the filing requirements are enacted, as my hon. Friend says, companies can make filings up to the extension dates. As was mentioned earlier, if there is a need to extend temporary provisions, we will look to see if that is required. While we recognise that these and other support measures will not, sadly, be able to save every business and every job, the Bill delivers commitments that will give businesses in difficulty due to the pandemic a fighting chance of eventually bouncing back.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
There are indeed some important measures in the Bill, and we will undoubtedly scrutinise them in more detail in due course. I thank the Secretary of State for the work of the officials in his Department to support a number of businesses in my constituency, and I thank the Welsh Government for the support that they have provided through the economic resilience fund.
We have not had enough support from the banks, some of which have not only struggled to make themselves available to businesses seeking support through the loan schemes that the Government have set up but seem to be trying to push off their books businesses that could make it through the crisis. What does the Secretary of State have to say to the banks?
Alok Sharma
When we first launched CBILS there were a lot of concerns about how quickly the process was moving. I have been talking to banks individually and to senior managers in the banks, and I think that we are beginning to see movement. CBILS has had over 40,000 loans out of the door, and over 450,000 bounce-back loans have been made. If there are specific banks about which the hon. Gentleman has concerns—he, like all colleagues, is concerned about retaining employment in his constituency—I would be happy to take up those issues with him individually.
Kevin Hollinrake (Thirsk and Malton) (Con)
Because of the success of bounce-back loans—it is a much easier process to get a bounce-back loan than a CBILS loan—lots of businesses that need more than £50,000 have gone for a bounce-back loan as an interim step, but are restricted from taking a CBILS loan, as they can only have one or the other. Would my right hon. Friend consider allowing businesses to apply for a CBILS loan for a larger amount, subject to necessary lending criteria, then paying off the bounce-back loan so that they can get access to the finance that they need?
Alok Sharma
My hon. Friend makes an incredibly important point. I am sure that the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam (Paul Scully), will correct me if I am wrong, but my understanding is that it is possible to transfer loans between the bounce-back scheme and CBILS. I am happy to discuss that with my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who is absolutely right—people cannot have one of each, so to speak, but I think that it is possible to make a transfer.
The measures set out in the Bill have been welcomed across the board by business representatives’ organisations such as the Federation of Small Businesses, the Institute of Directors, the CBI, the British Chambers of Commerce, R3—the insolvency and restructuring professionals trade association—and the Trades Union Congress. Some of the measures will take retrospective effect to provide as much relief to businesses as possible. To ensure that is the case, we have announced the dates from which the measures will begin.
Let me turn to corporate restructurings, and the package of permanent corporate restructuring measures, which have previously been consulted on. As colleagues know, they were consulted on in 2016, and then formed part of a wider consultation on corporate governance and insolvency published in 2018, so they have been consulted on in some detail. They will have immediate effect in helping companies get through the covid-19 emergency.
A number of time-limited provisions are there to cater for the immediate economic impact of the covid-19 pandemic. They have been added to the package and will be in place for a month after Royal Assent.
Richard Fuller (North East Bedfordshire) (Con)
Playing a fundamental part in the Bill, we have a number of measures that have been consulted on for a long period; people have thought about them and, as my right hon. Friend said, there has been a large degree of consensus around them. Then we have some other measures that have been brought forward in response to the immediate crisis; the Department has worked incredibly quickly to come up with them. Is the Department satisfied that it has got the balance right between the two? Is there anything that we should look out for in the next few months about the permanence of some of those measures?
Alok Sharma
My hon. Friend is of course right. By the way, I am delighted that he is back in the House, after a short absence. He brings a huge amount of experience in this area, as a result of his work in the private sector. The permanent measures have already been consulted upon, and they enjoy broad support. The temporary measures are of course temporary, and if we were to look to extend any of them, we would have to do so by way of regulation—we would have to come to the House with statutory instruments, and there would be an opportunity, if colleagues in the House felt it was not right to extend them, for them to voice their concerns. So I do think we have managed to get the balance right in this case. We want to ensure that the measures are put in place as quickly as possible, so that we are able to provide support to businesses in difficulty right now. In all the discussions that we have had with the right hon. Member for Doncaster North and his colleagues, we have always had a really constructive approach; I hope that is exactly what we will have today as well.
Kevin Hollinrake
I speak as a co-chair of the all-party group on fair business banking, has dealt with a lot of problems in how banks treat SMEs, facilitated by insolvency practitioners. To eliminate those conflicts of interest, the Secretary of State’s Department has committed to bringing forward measures to provide that the conduct of insolvency practitioners is overseen by a single regulator, rather than by recognised professional bodies. Can he commit to bringing forward those measures in the not-too-distant future, so that we can try to eliminate those conflicts of interest?
Alok Sharma
My hon. Friend the Under-Secretary of State will elaborate on some of the points that my hon. Friend raised. I would simply say that in July 2019, the Government issued a call for evidence on the insolvency regulatory framework, to determine whether any changes needed to be made. That included questions on whether there should be a single regulator. We expect to publish the Government response to the call for evidence later this year. Perhaps my hon. Friend the Under-Secretary will elaborate later.
Returning to the Bill, the package of measures has three elements. The first is a moratorium. That will give a company that is threatened with insolvency temporary respite from its creditors and a chance to arrange refinancing or a rescue. The moratorium will be for an initial period of 20 days, which can then be extended. There will be a time-limited easing of the eligibility criteria for a company to enter into a moratorium, to make it more accessible during the covid-19 response period.
Mike Wood (Dudley South) (Con)
The temporary measures that my right hon. Friend has included in the Bill will provide great respite for many businesses, particularly in the hospitality sector, where businesses have been unable to trade throughout this outbreak but rents have remained very high; the measures will protect them from aggressive landlords. Those pressures will continue well past the end of June, so will he consider extending the protection for tenants from winding-up petitions?
Alok Sharma
Of course, that is part of the measures that we will bring in. I recognise why my hon. Friend wants to ensure that tenants have protection, and that is why we will introduce the temporary measures around this issue, but of course we also need to think about landlords. I will address that point as I go through my speech.
Returning to the moratorium, the time-limited easing of the eligibility criteria for a company to enter a moratorium, to make that more accessible during the covid-19 response period, will be in place for a month after Royal Assent. Of course, that can be extended if it is deemed necessary.
The second part of the new permanent restructuring measures will allow companies in financial difficulty to propose a rescue plan to restructure complex debt arrangements, and to bind creditors to it, as long as certain thresholds are met. That means that viable companies struggling with debt obligations will be able to restructure under the new procedure.
There are, however, significant safeguards and protections for creditors, which is right and proper. The plan must be sanctioned by the court and, indeed, any dissenting creditor class bound to a plan must not be made worse off than it would have been in the next most likely outcome. I know that a number of colleagues, both in the House and outside, have raised this issue. That is why we have ensured that this measure is in place.
The third part of the restructuring package will prohibit termination clauses. That will prevent suppliers from terminating contracts or raising prices just because a company has entered an insolvency procedure or a moratorium. Of course, we recognise that requiring companies to supply under those circumstances may cause them financial difficulties, so we have built in a number of protections for suppliers too.
If continuing supply would cause a supplier hardship, it can apply to the court for permission to terminate the contract. In addition, if goods or services supplied after the insolvency begins are not paid for, the supplier can terminate the contract. Further, the Government will temporarily exempt small suppliers from this requirement altogether during the covid-19 crisis, recognising the particular challenges that those firms face.
Mark Pawsey (Rugby) (Con)
Small businesses often find themselves dictated to by larger organisations, and the last thing we want is for small businesses to be put at a disadvantage by being compelled to supply when they are not capable or it is not in their interest to do so. Will the Secretary State reassure us that small businesses in particular will be protected by these provisions?
Alok Sharma
My hon. Friend raises a really important point about protecting small suppliers. They will of course have this exemption. According to the definition in the Companies Act 2006, a small supplier is one that meets two of the following three criteria: having up to 50 employees, a turnover of up to £10.2 million, and gross assets of up to £5.1 million. I think that will cover a very large number of businesses in our country.
Richard Fuller
May I thank you, Madam Deputy Speaker, for permitting so many interventions? As we are rushing through the Bill relatively quickly, it is important that Members on both sides of the House have the opportunity to raise points directly with the Secretary of State, so thank you for permitting some latitude for interventions.
The small business commissioner appeared before the Business, Energy and Industrial Strategy Committee a few weeks ago, and I posed some questions about whether he had the powers he needed. As my right hon. Friend looks at this period, with the particular pressure caused by covid-19, is he assured that the small business commissioner’s powers are as will be needed, or does he envisage wanting to look again at this in the future?
Alok Sharma
My hon. Friend raises an incredibly important point. I championed this issue—support for small businesses—when I was on the Back Benches. As he will know, the Government’s payment terms are favourable in setting a very time-limited period within which payments must be made to Government suppliers, and of course the Government also require that if a large organisation is being paid by the Government under a contract, they need to pass on that speed of payment to smaller subcontractors. He will also know that in the manifesto on which he and I stood we committed to looking further at the role of the small business commissioner and how it might be strengthened. We will bring forward a consultation on that in due course.
I move now to the temporary measures in the Bill. The first set provides for a suspension of the serving of statutory demands and a restriction on winding-up petitions. These measures will be retrospective from 1 March and 27 April respectively and will last until one month after Royal Assent, although they can be extended if that is deemed necessary. The Coronavirus Act 2020 temporarily suspended the right of commercial landlords to forfeit the tenancies of retail businesses in order to protect tenants unable to trade because of covid-19. While this temporary suspension has been in place, the majority of landlords and tenants have been working well together to reach agreements on debt obligations, but a small number of landlords have been using aggressive debt recovery tactics to put pressure on tenants, including through the use of statutory demands and threats of winding up. For this reason, the measures in the Bill to limit the use of statutory demands and winding-up petitions have been welcomed by many, especially in the hospitality sector.
Mr Jonathan Djanogly (Huntingdon) (Con)
The Government have repeatedly spoken about this clause in the context of landlords, but can the Secretary of State confirm that it actually applies to all creditors?
Alok Sharma
It is intended to apply to all suppliers—I am sure I will be corrected if I am wrong on that. As my hon. Friend has also been keen to point out, although this measure is not restricted to commercial landlords, some landlords will have particular concerns, and I can reassure him that the Government will monitor the impact of the measure and are asking lenders and investors to consider how debt obligations can be met in a way that does not put unnecessary pressure on landlords.
Kevin Hollinrake
In respect of commercial loans, currently the banks, when showing forbearance, are providing capital repayment holidays but only on the capital element of the repayment. In respect of residential mortgages and loans, they are giving complete repayment holidays. The monthly capital repayment is a small element of the overall payment. The banks could be much more helpful to landlords by giving a complete holiday across the whole repayment for a period of time while showing forbearance to their tenants.
Alok Sharma
Colleagues in the banking sector will I am sure be watching this debate and listening in, and they will have heard what my hon. Friend has said. I would be happy to have a discussion with him after this debate if there are particular points that he wants to raise or if he wants to talk about particular organisations.
The second temporary measure is the suspension of the wrongful trading provisions. This will be retrospective to 1 March and will be in place until one month after Royal Assent, and again it can be extended if that is deemed necessary. Hon. Members will know that wrongful trading is an important deterrent against company directors continuing to trade when the company is insolvent and when doing so increases the losses to creditors. Directors can be made personally liable as a result. However, during this difficult period, many otherwise viable companies may become technically insolvent, particularly if they have been severely affected by a drop in demand caused by covid-19. This measure gives company directors the confidence to use their best efforts to continue trading without the threat of personal liability, should the company ultimately go into insolvency. Since the measure was announced in March, we have received much support for it from stakeholders. The Institute of Directors has welcomed it, saying that it
“will help to avert entirely preventable corporate collapses.”
The Bill also contains the necessary time-limited powers to extend these temporary provisions, should that prove necessary.
The Bill will also allow the Government to make other temporary amendments to insolvency law or the new restructuring plan to deal with the effects of covid-19, where needed. The power to amend corporate insolvency or governance legislation will allow the insolvency and business rescue regime to react quickly to the challenges we face as a result of the impact of covid-19, and that power will expire on 30 April 2021. However, due to the potential unforeseen circumstances relating to covid-19, the expiry date of this power can be extended if it is deemed necessary. If an extension is sought, the House will of course have an opportunity to scrutinise it.
The next group of temporary measures deals with meetings and company filings. These measures enable companies and other bodies, including mutual societies and charitable incorporated organisations, to hold AGMs and other meetings in a safe way, while respecting social distancing rules.
Sarah Olney (Richmond Park) (LD)
On the point about AGMs, it is obviously good that the legislation makes provision for AGMs to be held digitally, but is it necessary for the legislation to restrict the participation of shareholders quite as much as it does? Surely, if a digital method enables shareholders to question directors, that should be encouraged if it can be facilitated.
Alok Sharma
There are, of course, other methods for shareholders to question directors of a company. There will be shareholders’ days, for example. The reality is that businesses will be reacting and doing their best to try to get information to their shareholders. I am sure that the hon. Lady’s point will be noted, but the intention of this Bill—and, I think, of the business community—is not in any way to use these measures to restrict shareholders’ access to information. This is actually about making sure that we can get past the pandemic and be in a position to bounce back.
The flexibility in terms of these meetings and filings will apply from 26 March—retrospectively, obviously—until 30 September. The measures also enable AGMs to be postponed until 30 September this year, where necessary.
Sara Britcliffe (Hyndburn) (Con)
I am encouraged that the measures for AGMs and other meetings are temporary. Does my right hon. Friend share my belief that in-person AGMs provide the best opportunities for shareholders to hold their directors to account?
Alok Sharma
My hon. Friend makes an important point. We would all like to get back to those face-to-face discussions, just as we are doing in the House today. These are temporary measures, and I hope that when we get through to the other side there will again be that opportunity for shareholders to meet and ask questions face to face, because that is right and appropriate.
Gareth Davies (Grantham and Stamford) (Con)
Can my right hon. Friend confirm that the Government are not mandating how companies and organisations are to hold an AGM, but rather giving them flexibility at this incredibly difficult time as to how best to engage with shareholders?
Alok Sharma
My hon. Friend makes an incredibly important point. This is not about mandating; this is about giving choice. I expect that many companies will take up the temporary support that is being made available through these measures.
Expanding on the announcement I made on 25 March that companies would have an extended period for filing accounts, the Bill will also give businesses more time to meet a range of filing requirements. The extensions to the various filing requirements will be set out in regulations to be laid once the Bill receives Royal Assent. We will be giving businesses the maximum period allowable under the powers in the Bill for filing their accounts, confirmation statements and event-driven updates. We will also extend the period within which charges should be registered with Companies House to 31 days, which I believe strikes the right balance between providing businesses with breathing space and ensuring that lenders are protected.
In conclusion, the package of measures that the Bill introduces will give businesses the best opportunity to survive the effects of the covid-19 crisis and lay the foundations for a bounce-back in the UK economy. This Government are committed to supporting businesses. We are listening, and we are putting in place meaningful and common-sense measures to provide that support. Let me end by again paying tribute to the millions of business owners up and down our country who are doing their bit to keep Britain moving. In bringing these measures forward, we demonstrate again that we stand with them. I commend the Bill to the House.
Edward Miliband (Doncaster North) (Lab)
I begin by thanking the Business Secretary and the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Sutton and Cheam (Paul Scully), for the constructive conversations that we have had about the Bill, including with the shadow Business Minister, my hon. Friend the Member for Manchester Central (Lucy Powell). We are very much approaching this in a constructive way, and we welcome the discussions.
I want to focus on the provisions in the Bill and the wider policy context around insolvencies, which will determine what happens to millions of businesses in our country. As the Secretary of State implied, we face potentially the most dramatic recession in 300 years. What is more, we know that it is a recession necessitated by the essential public health measures that have been taken to contain coronavirus. Just as we are mutually dependent on each other when it comes to controlling the pandemic, I believe there is agreement across the House that that sense of mutual dependence should extend to the businesses of our country, because it is the right thing to do and because it is in all our interests. Every viable business we save will make the recession less deep and the recovery easier. Every business lost is disastrous not only for that business and its workers, but for our economy and all of us.
We know the great distress that many businesses are facing, and I join the Secretary of State in paying tribute to businesses up and down this country that are keeping going in these circumstances, with one fifth temporarily pausing or ceasing trading during lockdown and another quarter saying that their turnover was down by at least 50%. That is the context in which we should test our approach as a country. I acknowledge that this challenge is bound to test the imagination, speed and responsiveness of any Government, and that is why we want to work constructively with them.
In that context, we welcome the measures in the Bill to help reduce insolvencies and will support their passage. As I will explain, we do not think the Bill does enough to address the dangers for what we might call the less powerful interests—particularly employees—when it comes to insolvency and the new restructuring provision, and I will explain what I mean by that.
Let me say something about the headline provisions, many of which we agree with. As regards the permanent measures, we support the moratorium to give breathing space to firms. We welcome the measures to prevent suppliers from sending businesses into liquidation, suspending so-called ipso facto provisions, and I will say something in a minute about our views on the new restructuring plan provision.
Ian Paisley
I thank the right hon. Gentleman for giving way and for welcoming this Bill, which I do as well. Does he accept that what is so important about the Bill is that it includes and incorporates Northern Ireland absolutely? Northern Ireland is not cut adrift and the Bill does not have some special arrangement that the Assembly will manage; Northern Ireland is part and parcel of it. The measures have given collective support to businesses across all the United Kingdom and especially in Northern Ireland. Without British money, we would have been ruined. That is the bottom line.
Edward Miliband
I certainly agree with the hon. Gentleman that it is very important that the approach is UK-wide, and I welcome that.
Let me say something about the temporary measures in the Bill. We think it makes sense to remove the threat around winding-up orders, for example, to deal with the issue around landlords. We welcome the measures that the Secretary of State put in place, but there is another way around, as it were, which is a landlord issuing a statutory demand followed by a winding-up order. We think that the suspension of personal liability for wrongful trading while insolvent makes sense as a measure, but for a strictly time-limited period. It is important, as I think is clear, that other duties continue to apply to directors.
In addition, easing the requirements on company filing deadlines and AGMs makes sense. Indeed, given proceedings yesterday in this House, the facility in the Bill for virtual proceedings at AGMs carries a certain irony. If only the Business Secretary had told the Leader of the House, perhaps we would have been spared a lot of trouble and a lot of queuing yesterday.
As the hon. Members for Dudley South (Mike Wood) and for North Antrim (Ian Paisley) have both said, there is clearly a case for a longer period than to 30 June. This is no disrespect to the people writing the Bill, but I think we can agree across the House that the temporary measures will need to be in place for longer. We would be happy to see an amendment that puts the end of September in the Bill, and one of our amendments would do that. I accept the Secretary of State’s point that the change can be made by statutory instrument.
Having given the Bill a broad welcome, I want to raise some issues.
Stephen Doughty
I agree with all that my right hon. Friend has said. Does he agree that some extension will be needed for some of the sectors that may be hit for longer, such as the creative industries? Many in my own patch will be affected for longer because they will be closed down for longer, and they need special assistance.
Edward Miliband
My hon. Friend is a brilliant champion of those industries and other industries in his constituency, and I agree with him. I will come on to the particular sectoral challenges that the Secretary of State and the Government are facing.
Let me mention the areas where we would like to see improvements made to the Bill. First and most importantly, the Government’s case on the restructuring plan provision is that it could have benefits in enabling companies to restructure and not go into liquidation and in stopping large creditors from forcing companies to do so. I accept the case. I think I am right in saying that the cross-class cram-down provisions—it is not a very beautiful phrase—apply across the EU under EU law and apply in the United States as well. What is important about the provisions is that they mean that even if a class or classes of creditors object to a rescue plan, it can still go ahead providing they are better off than in the other most likely scenario, which is often going to be liquidation. That is why protecting those without power—creditors and others—is so important.
What cannot be allowed to happen—I know the Secretary of State agrees with this—is for the RP provision, which has wide scope and is not just for companies that are insolvent, but for those who fear they might become so, to be used to ride roughshod over the rights of employees, including their pensions. Given the nature of the crisis we are in, it is essential that there are proper safeguards.
To give an example, the Secretary of State will have heard earlier the deep concerns across the House about the actions of British Airways, including sacking its employees and apparently offering worse terms and conditions. The RP provision cannot become a charter for more of that sort of action, and it is our mutual responsibility to make sure it does not become so. I know the Secretary of State shares that view.
Richard Fuller
I am extraordinarily grateful to the right hon. Gentleman for raising this point, because he will be aware that when a company is in a crisis situation and has so many wolves at the door, it has to make rapid decisions to salvage the assets and the business and continue, hopefully, to trade profitably. He is putting his finger precisely on the issue of what the rights of employees in that circumstance are and what protection there is for their pension benefits in the long term—that is a fundamental part of this issue. I am interested in his new clause on employee representation, which refers specifically to trade union representation; would he be prepared to broaden that out to include some broader sense of employee representation?
Edward Miliband
I welcome what the hon. Gentleman says, and the answer is yes, because lots of businesses do not have trade unions, and the question is what rights employees will have in those circumstances. The US experience is quite informative: I mentioned the US hazard provision, and at American Airlines and General Motors we saw employees lose out very significantly. The hon. Gentleman’s point about pension provision is absolutely part of this. I very much hope—this is the spirit in which we are approaching the Bill—that the Government will seek to improve the protections that are in place. Our new clause 5, to which the hon. Gentleman referred, seeks to ensure mandatory discussions with the trade unions once a company enters a restructuring process. That will ensure that employees are provided with all the information made available to the court and fully consulted on any restructuring plan, and the court could then take that into account. There may be better and more comprehensive ways to build in such protection, but it is essential that we do so. Perhaps the Minister can come back on that in his winding-up speech and, indeed, in Committee.
Secondly, we are concerned about similar issues when it comes to insolvency. Unsecured creditors are left to bear most of the risk of insolvency, so they are often at the back of the queue when it comes to being protected. The protection of unsecured creditors, or the greater protection of them, could be provided through strengthening the ring-fencing of the proceeds of sale of assets when a company becomes insolvent, increasing the proportion of the proceeds reserved for them to 30%, and removing the financial limit, which is what we propose in one of our amendments. We also believe that pension schemes—this goes to the point that the hon. Member for North East Bedfordshire (Richard Fuller) made—should be made a priority creditor in the event of insolvency so that they get to have a role as a class, because currently I do not believe that they necessarily will.
Jim Shannon (Strangford) (DUP)
I welcome the right hon. Gentleman to his position and wish him well. I have a bit of concern about what I refer to as predatory companies, which look for companies that are probably heading towards insolvency and see them as an opportunity to gain something. I wonder whether it is possible to ensure in the Bill that such predatory companies that would prey on those in trouble, of which there are many, are prevented from taking over an asset that is probably solvent in the long term but is not in the short term.
Edward Miliband
I agree with the hon. Gentleman’s intervention. I once used the word predatory in relation to companies and it was rather controversial, but I think the consensus may have changed. [Interruption.] Government Members are saying it has not; it was worth a try. The hon. Gentleman makes a really important substantive point on which I think Members from all parties can agree, and it goes to the width and breadth of this provision: we have to make sure that companies cannot use it as a way to take their employees for a ride. I know from my conversations with the Secretary of State and the Minister that the intention to make sure that that does not happen is shared throughout the House, but we have to give expression to it in the Bill, and I hope the Government will indeed do so.
Let me turn to some things that are not in the Bill—
Kevin Hollinrake
The right hon. Gentleman touched on his amendment that would ring-fence 30% of assets for unsecured creditors; is he not concerned that if we did that, people who are willing to extend finance to businesses on a secured basis may be less willing to lend?
Edward Miliband
I believe I am right in saying that the hon. Gentleman knows a lot about this, and I congratulate him for his work on the all-party group dealing with the whole range of these issues, but I am talking about the situation after secured creditors and others have been dealt with. There is currently a provision for 20%, but up to a limit of £800,000. Our amendment seeks to make that 30%, and to raise the proportion, but remove the limit. We must ensure that we do all we can for employees and small businesses—my hon. Friend the Member for Manchester Central will correct me if I have got those figures wrong, but I think I am broadly right.
Two sets of issues are not in the Bill, although we would have liked them to have been included, as I believe they are missed opportunities. First, in 2018 the Government consulted on a set of corporate governance safeguards in the wake of the scandal at Carillion, and indeed at Thomas Cook, which came after that. I understand that the Bill relates to the immediacy of the coronavirus crisis, but it would have been better if the Government had acted on those vital corporate governance issues in the Bill, and we would have supported them in doing so. Given that this crisis makes corporate distress more likely, it is strange that the Government have not chosen to introduce such measures. The risk is that we will get more Carillions and Thomas Cooks, with all the consequences of that for employees.
In 2018 the Government were committed to greater accountability of directors in group companies, legislation to enhance powers for insolvency practitioners, and further raising standards by ensuring an explanation about the affordability of dividend payments. Labour supports all those measures—indeed, we have tabled amendments to insert them into the Bill—and we do not think they cut across the need to protect businesses through the coronavirus crisis. Will the Government explain what plans there are for those improvements to corporate governance? I understand that the Bill must go through at speed, but it would have been better if it contained those measures.
Secondly, like the hon. Member for North East Bedfordshire, I wish to mention late payments to small businesses, and the important role of the Small Business Commissioner. If larger companies do not make good on their payments to small businesses, that could be the thing that pushes them over the edge. We believe that the Bill could be used to strengthen the powers of the Small Business Commissioner to help businesses that are struggling with cashflow and liquidity, and such a measure would have improved the Bill.
As I have said, we want to facilitate the passage of the Bill as it is important to protect businesses up and down the country, and we hope it can be improved in the ways I have set out. Having dealt with its specific provisions, however, let me deal with the wider context. The measures in the Bill can play a part in preventing insolvencies, but as the House knows, the number of businesses that go out of business depends on the external environment and on what the Government do in response to that. I welcome the action taken by the Government so far. There are lots of measures that we support, but we also believe there are gaps and other areas where the Government need to act.
I wish briefly to outline four sets of issues that go directly to the question of insolvency. First, I fear that the support system introduced by the Government is still not working sufficiently for our SMEs, and it risks worsening the insolvency problem. We called for the 100% underwriting of loans six weeks ago for smaller firms, and we welcomed the bounce back loan. Clearly, however—the hon. Member for Thirsk and Malton (Kevin Hollinrake) made this point—those loans do not do enough for SMEs that need more than £50,000 of liquidity.
The bounce back loan was intended to improve the working of the CBIL scheme, but I am afraid that has not happened. I have the figures for what happened to the CBIL scheme in the past few weeks—I am sure the Secretary of State is as in touch with them as I am—and the number of facilities approved each week is going down, and the gap between the total numbers of applications and approvals is widening. Somebody contacted me the other day who will not be counted in those figures. He waited two months to be told by his high street bank that he was not eligible and that there was no point in him applying for a loan under the CBIL scheme. He will not be counted in those statistics, and hon. Members across the House will have heard of similar experiences.
I know that the Secretary of State is dealing with a range of issues to do with companies in distress. As I understand it, the idea was to get rid of the forward credit check for the CBIL scheme, but that does not seem to be doing the business and we need to understand why. I personally would be open to having 100% underwriting slightly higher up the scale, but we need a solution.
Secondly, beyond SMEs, I am deeply concerned about particular sectors, with manufacturing top of the list. We have seen thousands of redundancies at Rolls-Royce, real problems in the aerospace sector, issues in the car industry and massive issues facing steel. In France, steel received support within a fortnight of lockdown, whereas here our companies are still waiting. We read stories in the Financial Times about public equity stakes being considered—the so-called “Project Birch. It sounds like an interesting idea, but I say to the Secretary of State that this is taking too long, both for larger companies and for the SMEs in the supply chain.
Stephen Doughty
My right hon. Friend is right to mention steel and aerospace in particular, as they are crucial providers of jobs in south Wales, and we have the situations with BA and with the steel industry. Does he agree that we need to get support to them as soon as possible?
Edward Miliband
My hon. Friend has been powerfully advocating for the steel industry, along with other hon. Members in all parts of the House, and there is real urgency in this respect.
Let me just say something about the CLBIL—Coronavirus Large Business Interruption Loan—scheme, which is for larger loans. We are talking about more than £45 million. I fear that this is Treasury orthodoxy, so I will not expect the Secretary of State to comment. We all know Treasury orthodoxy—I do, as I used to work there. The good news is that the Chancellor raised the limit to £200 million for the amount that companies can get, but the bad news for companies is that the CLBIL loan has to become their most senior loan—it has to be top of their list. The problem is that that means companies then have to renegotiate their other most senior loan, so they are caught in a Catch-22 situation. I suspect the Secretary of State agrees with me, but he cannot say; perhaps the Chancellor is watching. I say to the Secretary of State that companies such as McLaren have said, “We have tried to get this loan but we cannot get it because of this Catch-22 situation.” This is urgent and I urge him to get it sorted. We have had only £1 billion paid out under this scheme; 191 firms have got loans, but that is out of 579 that have applied. This is about manufacturing largely; it is about lots of large manufacturers across our country who are really in distress. There is more to be done in advancing some of the money that is already in the budget for low carbon. That is true in relation to aerospace, where I believe there is a fund—I am hoping that can be advanced— and to steel.
Let me refer to some other sectors, as one of my hon. Friends did earlier. With the public health measures that are necessary, it is obvious that sectors such as hospitality, tourism and the arts will face much greater pressures for longer; they are going to take longer to reopen and recover. To give the House a sense of the scale, I should point out that the British Beer and Pub Association has warned that up to 40% of Britain’s pubs cannot survive beyond September with the current level of financial support; that one third of jobs in tourism-related areas are estimated to be at risk; and that the Society of London Theatre and UK Theatre estimate that 70% of the 290,000 jobs in that sector are at risk. Those are dire warnings we are being given.
That brings me on briefly to the furlough scheme. It has been a really good innovation, but I do not understand why the Chancellor is pursuing a one-size-fits-all policy on that scheme, because the public health measures mean that some sectors will take longer to reopen and recover. Whether through the furlough scheme or a second wave of support, these sectors are going to need extra help. I know the Secretary of State is working on this, but I underline its importance: we are talking about thousands of pubs across our country, hundreds of theatres and arts venues, and jobs in tourism. These things are the lifeblood of our constituencies.
Thirdly, I want to raise with the Secretary of State the issue of the “month 13 problem” of insolvency. This is a bit further off, but it is still an issue. Even if the Government fix their loan schemes and provide the sectoral support required, the more debt there is weighing down companies, the greater the danger of insolvency down the line—this debt overhang is also bad for our economy when it comes to recovery. [Interruption.] I hear the hon. Member for North East Bedfordshire muttering about borrowing from a sedentary position, but I am talking about private debt. The Federation of Small Businesses has been suggesting for some time that loans need to become income contingent. It has suggested a student loan-type approach. In other words, when businesses get to a certain level of financial health, they can start repaying the loans. There may be other ways forward, such as converting the loans into equity, but we are going to need solutions for these firms.
Bim Afolami (Hitchin and Harpenden) (Con)
Would the right hon. Gentleman support the ideas that I have been doing some work on—as have lots of people—outside this place in relation to recapitalising the British corporate sector, not just in terms of debt to equity, but in finding ways to get much more equity into our businesses so that they are not weighed down by debt? That approach could be how we recover from this situation.
Edward Miliband
I agree with the hon. Gentleman. We need innovative thinking in this area. We are going to have to do things—I think that the Chancellor has said this—that we would not have done in normal times, but we cannot send businesses back out into an economy that is recovering, with this massive debt overhang. [Interruption.] I will not give way again because I need to get on with it so that other Members can speak; I can see the beady eye of Madam Deputy Speaker.
Fourthly, crucial to helping businesses through this crisis is an economic stimulus that matches the moment. In particular, I hope that plans for a green recovery, which the Government have been talking about, will be at the centre of what they do. This is the way to get our economy moving, help to save businesses and meet our climate goals.
The Bill is a step forward. We continue to have worries about the protection of workers in the event of restructuring and insolvency, and hope it can be addressed as the Bill passes through both Houses. I wish that the reforms to corporate governance had been included.
I will end by mentioning the wider economic context. We are only at the end of the beginning of the economic crisis that we are facing, and there is a need for urgency, boldness and action in the coming weeks and months. The Chancellor has said that he will do whatever it takes. In my view, that means support for specific sectors, reform of the loans scheme, imaginative solutions to the debt problems facing the small and medium-sized enterprise sector, a commitment to building back better and a green recovery. It is in the interests of everyone across the country for the Government to act; if they do, they will have our support.
Stephen Hammond (Wimbledon) (Con)
It is a great pleasure to follow the shadow Secretary of State. During this crisis, many of us have experienced groundhog day, and we have certainly just experienced it now; looking at the right hon. Gentleman at the Dispatch Box took me back to a period before 2015.
I warmly welcome the Bill. As the shadow Secretary of State said, the Secretary of State is right to set this legislation in the context of an extraordinarily impressive set of business measures—regardless of any tinkering around the edges that is needed—that the Government have put in place to tackle the covid crisis. We are right to recognise that in normal circumstances the Bill probably would have been split into two phases. Some of the changes that it contains are permanent, and have been debated and consulted on certainly since 2016, but maybe earlier. Other changes are rightly temporary, as they are urgent measures to address the challenges faced by many in the corporate sector who would not necessarily normally be experiencing such problems with insolvency. The flexibility is therefore clearly right.
As I have said, the Bill sets out a number of permanent and temporary concepts and provisions. I will spend a little bit of time reflecting on one or two of the permanent ones, before finishing with a particular temporary issue that affects my constituency. The Bill outlines the concept of moratorium, and it is quite clear what that is. It gives the challenged business a 20-day opportunity to consider a rescue plan. That can be extended for a further 20 days if the directors ask for it, and can, as I understand it, be extended for a whole year should the creditor or the court consent. The purpose of that is clearly obvious, and all that makes a huge amount of sense. During that period the directors retain control of the company and no legal action can be taken against it without a court decision.
However, the process is overseen by a monitor, a point on which I want to raise a few issues that I hope my Front-Bench colleagues will consider or at least address later. First, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) has already raised with the Secretary of State the potential conflict of interest to do with whether the monitor is sanctioned by an independent regulatory body or is just a normal insolvency practitioner that could be taking work from one group of companies with one hand and, with the other, working against that in looking at insolvency. I hope my right hon. Friends on the Front Bench will carefully consider the point about regulation and bring something back quickly.
The second point concerns the criteria that the monitor has to use for the moratorium, the time it could take to assess whether the definition is met, and whether the criteria are too tightly drawn or could be met more quickly if they were more easily drawn. I recognise the need for the monitor to make a suitable statement about the moratorium. The current threshold is whether
“in the…monitor’s view, it is likely that a moratorium…would result in the rescue of the company”.
However, the monitor has a relatively short period in which to make that assessment. In normal circumstances there would be a huge amount of due diligence done on trading, future trading, inspection of management accounts, general financial arrangements and debt arrangements. Not only does that normally take longer than 20 days; it is potentially a costly process to undertake. Particularly given the spirit of what we are trying to do in the Bill, will Ministers consider whether it might be more effective to look at the definition of the criteria and approve a slightly lower threshold for what constitutes a company that could be rescued? That might be as simple as saying that “it is likely” that the moratorium could result in the rescue of the company, as opposed to saying that “it must”. That would be of considerable help in rescuing companies.
Kevin Hollinrake
I agree with my hon. Friend and support his point. I think the provision to which he is referring is proposed new section A6(1)(e) in the Insolvency Act 1986, which contains the wording:
“in the…monitor’s view, it is likely that a moratorium for the company would result in the rescue of the company as a going concern.”
Simply changing “would” to “could” would resolve the issues.
Stephen Hammond
My hon. Friend drafts the amendment for me. I absolutely agree, and I hope those on the Front Bench will too. That would seriously help with what we are trying to do at this stage.
The permanent measures are designed to allow as many companies as possible to be rescued and to continue trading, but these companies will be creditors of others. In that regard, we must also look at the Bill’s potentially perverse impacts. I have a constituency case, Ms Ravindran, a constituent who runs a design business. It is a small company that is owed £36,000 by an individual, and at least 10 other creditors are owed up to £200,000 in total by that particular individual and company. She is rightly concerned that the Bill will give undue protection to one rather than the other. The issue is that it will be clear to those intending to use the provisions of the Bill to protect themselves, and to enable themselves to trade through and be rescued or restructured, that they should not be undertaking activities. I would like the Minister’s reassurance that the companies seeking to be rescued will not be able to take early advantage of things such as directors loans to take money out of a business that is then likely to apply for a moratorium and thereby impact others who are debtors of that company.
There is also a potential problem that I hope the Minister will be able to reassure me about later. Under the current drafting, ongoing trading costs and scheduled debt repayments that occur during the moratorium do get paid. Those that do not get paid become a super-priority, but nothing prior to that gets paid. The concern is that the potential suppliers to a company in the moratorium period may try to game that period. They may well see a company in difficulty and decide that it is easier to put the payments due to them in the moratorium period, so that they get super priority, not in the normal supply. I suggest to the Minister that the way around that is to have a look again at whether there could be some tweaking of the definition and to consider that the Bill be amended so that only the interest and charges incurred during the moratorium, rather than the scheduled debt repayment, becomes the super priority. That would take away the incentive to game the system.
There is clearly an understanding about why changes are proposed in the Bill to the termination of supply contracts. We all know that currently a supplier could use contractual terms to cease supply. Therefore, ensuring that a company that has entered into a moratorium or a restructuring procedure, as defined by the Bill, is not forced to rely on the usual contractual terms is clearly right, but there are some other circumstances. Again, have we thought clearly enough about the protection to the supplier? My right hon. Friend the Secretary of State rightly talked about some of the protections that are there, but it is clear that the non-payment of those debts to the supplier could put that supplier into insolvency as well, because it may not be able to get the protection from the court fast enough.
I think that the definition of what constitutes hardship to the small or medium-sized supplier or the company in the rescue package might clearly present some—I was going to use the phrase “wriggle room”—legal possibilities that should not be contemplated. Beyond the definition of hardship, should there not at least be a legal obligation in the restructuring plan that requires a supplier’s status to be given legal protection? I think that is quite important, and it inevitably means some reconsideration of the named cross-class clampdown proposals as well.
A lot has been said about the supplier and making sure that it continues to supply, and, hopefully, the company getting those supplies is then rescued. Again, however, in some circumstances not every company entering the restructuring procedures will actually be rescued. It simply will not happen. What happens then? As I understand it, the supplier is given the super priority status, but—and this leads into another point I want to make in a moment—will Her Majesty’s Revenue and Customs, or indeed other financial providers, want to be given super super priority status over and above that of the supplier? The provisions to ensure the continuity of supply are welcome, but I ask my hon. Friend on the Front Bench to reflect on whether he can reassure us about the protections to the suppliers.
That leads directly to my next point, which is that the Bill reintroduces the concept of making HMRC a preferential creditor. I am very concerned that all the good work that my right hon. Friend the Secretary of State is doing in this Bill could be unwound by doing that. It could have a really negative impact on business rescuing and lending across the UK.
Do not take my word for it: R3, the industry insolvency practitioner, directly makes that point. It goes against a policy, which has encouraged lending to small businesses, that has been in place for some 18 years.
Kevin Hollinrake
That is a very important point. I think the legislation is covered under clause 95 of the Finance Bill, which makes HMRC a preferred creditor once again. The real concern is not just that lenders will be less willing to lend on that basis—that is a concern because you go above lenders with a floating charge—but that HMRC may be less willing to show forbearance to businesses that are seeking protection and time to get through these problems.
Stephen Hammond
I thank my hon. Friend. The House will be pleased to know that it will not need to listen to the next couple of minutes of my speech on the basis that he has just made exactly the point I wanted to make about the floating charge in particular. They are the normal financiers to those sorts of businesses. If they find themselves displaced in the ranking of credit priority, they are less likely to lend and that will have an impact. It was introduced in 2002 and has seen an extraordinary expansion of lending via those floating charge providers. It would seem odd that we are, in one place, trying to do one thing in one piece of Government legislation, and potentially undermining the impact of this very welcome Bill in another. I hope the Minister will, with his formidable powers of persuasion, speak to the Treasury about this matter.
Stephen Hammond
The shadow Secretary of State says that he has long list. I am sure we all have, but I have only one point today, which is this particular issue. I ask the Minister to have a conversation with the Treasury about whether that measure, which it may or may not want to do, needs to be brought in now, because I think it will impact this Bill.
Finally, I want to talk about one of the temporary changes that directly affects my constituency. I welcome the flexibility that is being allowed to charities and bodies to move their annual general meetings or to hold them digitally. That is extremely sensible, but it does not cover all bodies. It does not cover charities set up under an Act of Parliament, or charities that are not CIOs—charitable incorporated organisations.
The wonderful Wimbledon and Putney Commons is such a body. It was set up in 1871 by an Act of this place and it has, in its constitution, a requirement that it meets in person, that all levy payers are instructed of the date of the annual meeting and that it must happen by the end of June. The measures in the Bill would undoubtedly help the conservators who run the common. The trouble is that it does not apply to them. May I therefore make a particular plea to the Minister to say in his winding-up speech either that the Bill will include all charities rather than just those set up under CIOs, or that all bodies set up by an Act of Parliament are included, such as the Wimbledon and Putney conservators—Wimbledon and Putney Commons. [Interruption.] I said conservators. For those who want a history lesson, I made that slip in my maiden speech, but I am not making it now. If that is not possible, I ask that there be a definitive statement that the Charity Commission specifically allows some temporary flexibility to those bodies. With that entreaty on behalf of Wimbledon Common, I thank you Mr Deputy Speaker.
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
I thank the Secretary of State for his customary and welcome thorough exposition of the Bill. I pass on my thanks, too, to the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Sutton and Cheam (Paul Scully) for his engagement. We have been working constructively to try to ensure that we are, as the Secretary of State said, supporting businesses with the measures we are taking. It is very important to remember that people and businesses should be the laser focus of the work we are doing throughout this crisis.
It is important to consider the Bill and support it through today in a constructive manner. That is what the SNP intends to do. The Bill, although in itself a welcome step in the current crisis, should not be seen in isolation. Some very good points were made by the right hon. Member for Doncaster North (Edward Miliband) and the hon. Member for Wimbledon (Stephen Hammond). Some interventions were also very telling.
As I have said, this Bill should not be seen in isolation. I want to touch on the impact of the Finance Bill, current business conditions and, of course, business and public confidence in the steps that need to be taken. This Bill helps with some provisions and should allow firms to apply their best endeavours to continue to trade during this pandemic emergency. As I have said, we support the Bill and the amendments to make that as easy as possible for people. None the less, as I have alluded to, the problems for the Bill lie in three other areas. Another piece of legislation—the Finance Bill—actually undermines, not just risks, these provisions and sets the conditions that could push companies to the brink. Then there are the plans to grant HMRC preferential status in the insolvency procedures, and the measures to make directors personally liable for companies’ tax liabilities. Together, these represent a significant challenge to businesses across the nations of the UK in trying to access working capital finance. While noting that it is difficult to accurately model the policy’s impact on business lending, UK Finance estimates that the policy could hit lending by well over £1 billion per annum, and possibly—because the modelling is difficult—much more than that.
As well as having a detrimental impact on business and economic growth, restricted lending will make it harder to rescue businesses, increasing the knock-on effect of insolvency on other businesses and people. Business investment returns to creditors and confidence in the UK corporate framework all stand to be damaged as a result. Although the tax abuse using the company insolvencies measure can be mitigated through accurate legislative drafting and detailed guidance from HMRC, the policy to grant HMRC preferential creditor status should be withdrawn entirely, as its introduction may prove a hammer blow to businesses at exactly the time that the Government profess to be seeking to level up and support them as they adapt to the impact of covid-19.
The second area of difficulty involves the economic inequities left by the gaps for businesses and Government support schemes during the covid-19 crisis. If the changes for this Bill can be pushed through sensibly in record time, there is no reason why the same urgency cannot be applied to filling the gaps that people and businesses are experiencing. We have heard today that there are substantial problems that not only exist now, with people struggling and unable to access support, but that are looming larger because of the decisions that have been made— over quarantine, for example. As I said during the statement earlier, this is not about whether quarantine is a good or bad device; it is about the fact that it will impact disproportionately on businesses involved in tourism and hospitality. That has to be addressed as we go forward.
The issues are very clear. Firms are already finding it difficult to access cash, not least because of the UK Government’s flawed coronavirus business interruption loan scheme. I say this with the understanding that the schemes had the best of intentions—to support businesses —but, as we have already heard, they are just not working for everyone. I will not repeat the details because we have heard about that in the Chamber today. There are also big holes in the job retention scheme and the support programme for the self-employed. All of those things are critical to supporting businesses, and all of those things undermine what we are trying to do with this Bill by working collectively to ensure that these measures are taken forward as effectively as possible.
I agree entirely that the Treasury should extend its 100% bounce-back scheme. That guarantee should cover the entire CBIL scheme. The fact that only a tiny fraction of businesses have received support underlines the need for the UK Government to introduce grants, not just loans. The UK Government should review and relax the lending criteria and speed up the process so that businesses can get vital access to cash.
Kevin Hollinrake
I think it is a bit harsh to say that the schemes are not working at all. About £30 billion has been lent under both those schemes—about £9 billion under the CBILS and £21 billion under bounce-back loans. The CBILS issue seems to be that, although the forward-looking viability test has been removed, banks are still assessing whether businesses can afford to make the loan repayments over that period. If we remove the requirement for banks to do that, a lot more money would go out the door under the CBILS.
Drew Hendry
I agree and I am willing to concede that some people have indeed been helped. I said that the scheme was introduced with the best of intentions, but the fact is that there are far too many people running businesses who have tried to access this scheme but could not do so. We have heard examples, and I could give dozens more from people who have contacted me. I guarantee that just about everybody—if not everybody—in the Chamber has had similar contact from people who have been unable to access the scheme. The fact is that it is not working as it was intended to. It is not getting through to the people who really need it, notwithstanding those who have been able to access it.
My party, the Scottish National party, also backs calls by the Institute of Directors for the Government to use the scheme to provide firms with overdrafts during this crisis. For firms still unable to access finance, it is high time—indeed, it is overdue—for direct grants and/or equity investments to be offered instead.
The final problem is public and business confidence. We are at stage four in the covid crisis at the moment. There has been a relaxation of measures for people to get out and about and do things and for businesses to start up, but that confidence evaporates if we have to go back to the restrictions and businesses are not able to do that. That will pile on the pressure for the businesses that we are trying to assist today.
I was struck by what was said by the hon. Member for Wimbledon—I hope I get this right—about one of the problems being the protection of one thing at the expense of another. That is a really good comment, because overall confidence and compliance for people and businesses will face further threat. All measures that are introduced by a Government who are, unfortunately, defined by double standards are likely to run into difficulties. This UK Government, these measures and those on public health are all being undermined by the failure to deal with the Dominic Cummings saga. No matter how much the Prime Minister bloviates, this matter has not gone away. My inbox and, I am sure, those of many others, were still full this weekend of messages from people looking for that to be addressed. I know that it is not a party thing, because I have seen the tweets and messages from people representing constituencies and parties around the House—they have all had the same messages. This matter—the principle of different rules applying—has not gone away or failed to register. We might take the comment of the hon. Member for Wimbledon and say that the protection of one at the expense of all others applies here. Observance of the rules is critical to the success—[Interruption.]
Stephen Hammond
The hon. Gentleman has taken a bit of latitude with what I said. I was pointing out that this was beneficial, but that we needed to consider the interests of the other and therefore their protection. He is corrupting, or misusing, my words, shall I say.
Mr Deputy Speaker (Mr Nigel Evans)
Order. I think we might be straying a bit further afield from what we are supposed to be debating this afternoon.
Drew Hendry
Thank you, Mr Deputy Speaker, but I did say that this was about the ability of businesses to continue to trade and this has a material impact on the Bill, because along with the Finance Bill, which it was entirely relevant to mention today, and the support for business, this can undermine the work that we are doing on this Bill. I will rein myself in now, but I think that that is a valid point. I hope—as you know, I greatly respect you, Mr Deputy Speaker—that you will understand and accept that point.
I have a lot more to say about that. This issue has not gone away, nor has it been dealt with—but it should be if the public are to have any confidence going forward.
Finally, returning to the Bill, getting this through today to protect people and allow them to trade out of difficulties is vital. We should accept that changes need to be made. I have set out a few, and we have seen the amendments. We should work collectively to make sure that the Bill is as good as possible to protect businesses.
Mr Jonathan Djanogly (Huntingdon) (Con)
I declare any interest I may have arising from my entry in the Register of Members’ Financial Interests. The Bill initiates the most significant changes in insolvency rules for at least the past 20 years, and it has two broad directions. The first introduces new requirements for moratoriums and company reconstructions, which have been consulted on in outline over the past two years. They were expected and are generally welcomed by practitioners and by business. However, when one looks at practitioners’ commentary, nearly all of them note that the devil is in the detail and they look forward to debates on the Bill. Of course, that is not going to happen to any extent, given that 170 pages of the Bill are allocated to two complicated proposals that were published a day before recess only two weeks ago. To allocate one day for all stages of the Bill is inadequate.
The foundation of our insolvency system is the Companies Act 1985 and the Insolvency Act 1986, both significant measures forged by a Conservative Government that have stood the test of time through the rebuilding of our economy after deindustrialisation, the dotcom crash and then the banking crash. Yes, we face another crisis, but rushing these changes through will not, in my view, produce the best law. For instance, if we take the moratorium, the key change is to introduce the concept of a monitor to review companies’ affairs. What will that involve? How will the role work, and will the monitor be able to charge for staff placed on site and so on? The purpose of the Bill is to present oven-ready processes that can be used to help businesses in the crisis, but I am not sure how that will work if practitioners, civil servants and possibly courts have to spend a long time working out what the law means.
The remaining provisions of the Bill have not even been consulted on despite their raising many serious issues of principle—above all prioritising the survival of businesses over the interests of creditors and consumers. We need to appreciate that the Government support schemes for businesses and employees, which have been popular and which I absolutely support, are often a blunt instrument. For instance, some businesses have taken state support, then gone on to renegotiate their leases, effectively leveraging their crisis support to undermine the market. The proposal to prevent winding-up petitions could accentuate that. Usually if companies are becoming insolvent, deals will be done and rents will fall, but banning winding-up petitions could undermine the market.
Why concentrate on big landlords? What about small companies sub-letting to cover part of their rent? They, too, will lose protection. As I asked the Minister, why are the Government talking just about rents when that applies to all debt and all sectors? Has the Minister considered that preventing winding-up petitions and the new wrongful trading termination provisions could reduce the willingness of banks and private lenders to issue credit? It could increase lenders’ risk aversion. It could increase demands for cash on delivery, prepayments and deposit increases. It could require more bonds and personal guarantees. That state meddling in the marketplace could have serious negative implications for credit and business, and I am interested to hear the Minister address those issues.
Some of the provisions are retrospective which, again, will undermine confidence in our economy. Why are the provisions being effected only for one month, as the hon. Member for North Antrim (Ian Paisley) and others have mentioned, which is simply unrealistic and points to extensions effected by ministerial order rather than by Commons debate?
Let us be quite clear: the provisions that will temporarily prevent winding-up petitions are being made on the basis of statutory demands not just from now but including those demands made between 1 March and 30 June. This suspension applies to all statutory demands, irrespective of whether the financial difficulties being experienced by the debtor have anything to do with covid, and of course they apply to all creditors. So a blanket ban is being introduced on a retrospective basis, with no reference to covid or the circumstances of the company. If I were to believe, as I do, that these provisions might merit the justification of proper scrutiny, a practitioners’ review and then feedback, I do not think that I would be asking for anything out of the ordinary.
On winding-up petitions being suspended, this is based on cash flow insolvency in circumstances where covid has had a financial effect on the relevant debtor, which has given rise to the proceedings in the first place. In such a situation, the creditor requesting the winding up must show the court that the company’s inability to pay its debts was not caused by the covid crisis. One wonders how, in the current health climate, the creditor will be able to show that this test has been met. Could the Minister enlighten us? Will there be a series of tests to be met, or will this all have to be fleshed out by the judiciary and the courts, which is presumably not the intention? Again, this provision is to be retrospective, so we could have a number of void petitions out there at the moment. Can the Minister advise us how many we are likely to be talking about?
The Bill goes even further, because it says that the court can make orders to restore a company where a petition was brought under the existing law but the requirement was not met. I believe that this would all be at the cost of the petitioner. Could the Minister confirm that? It looks like if creditor A has a petition in against company X, who owes A money, not only will creditor A be forced to withdraw his petition for winding up and be unable to collect his debt, but he might have to pay more money to company X to put X in the same position as if A had not tried to get his money back. We do live in strange times. Moreover, what about creditor A? How many mouths might creditor A have to feed from the money that should have come from X? What if X had been taking every loan and support going, but A had taken nothing from the state? I have met a lot of small businessmen who have not wanted to take anything during this crisis. There will clearly be knock-ons from this, and I am frankly unsure whether the legislation will help or hinder in certain respects.
Could the Minister explain why the winding-up provisions should be needed if the Government have confidence in their own new moratorium proposals, which will allow courts, following assessment, to stop winding ups? Will directors get any benefit from the wrongful trading proposals, knowing that they could be in breach of other directors’ duties and that these proposals are only temporary, so they could well need to justify their decision to trade on at a later date in any event?
The wrongful trading provisions have served us very well, and let us remember that they were brought in to reassure creditors and consumers who were disgusted at companies being used to trade in situations where they were clearly going to the wall. The reform of termination clauses in supply contracts had been suggested some time ago; I appreciate that. The problem is that if we stop people freely negotiating contracts in one direction, businesses will look for other ways of limiting their exposure. Ultimately, we can all understand that if I, as a supplier, am not paid for the previous consignment, I might not want to supply any more until I have been paid, because I might not get paid if the customer were to go insolvent. So we will head to cash on delivery, reduced credit, shorter payment terms and possibly contract terms. This will not help our economy.
Mark Pawsey
Does my hon. Friend agree that part of the problem is the 30-day, 60-day, 90-day culture that has arisen in trading between companies? It is much easier now for companies to get an earlier payment, because so many payments are by electronic transfer, and the notion that the cheque has to be there when the guy delivers the goods no longer applies. If this measure moves trading in that direction, does he agree that that would not necessarily be a bad thing?
Mr Djanogly
Not necessarily. These are the sorts of things that I would like to have heard debated, frankly.
The provisions have a limited time exclusion of, I think, one month for small companies. I am not sure of the worth of that. If a large company entered into a very large contract and failed to be paid yet was still forced to supply, that could be just as devastating as a scenario in which a small company had to do likewise on a smaller order. In my experience, not only are these clauses often negotiated, but there are standard gives and takes to be had. For instance, a hard termination clause for any type of insolvency event may be narrowed down to exclude deals with creditors or waived if the debt is repaid, say after a month, despite an insolvency event having occurred.
Removing the ability for negotiation in the way the Bill does may have a minimal impact at the cost of damaging our reputation as a place for free contracting. I can see that there are safeguards for suppliers to go to court on the grounds of hardship to the supplier, but going to the court in that way will not be a cheap process, and it will run the risk of throwing good money, which the supplier may not have, after the existing debt.
I agree with the proposals to enable AGMs to be held flexibly, but why mess about with the filing deadlines? If companies have filing problems, the current system allows for that to be quietly considered by the Department. Why publicly undermine our corporate governance and national economic credibility, especially on the filing of accounts?
My concern is that the Bill, although well meant, may not properly work for lack of scrutiny, or may provide dubious short-term benefit at the cost of longer-term distrust in our economic system. In market economies, weaker businesses will sometimes fail, particularly in a downturn. I suggest that the Government’s role is to ensure confidence in the marketplace rather than in companies themselves.
One thing that has been missing from the debate so far is the question of corporate governance in the wider sense. I notice—the shadow Minister, the hon. Member for Manchester Central (Lucy Powell), nods—that the Opposition have tabled new clause 3, which addresses that. As it happens, I do not agree with all the things in that new clause. However, I do recognise, and it is important to say, that a lot of companies have been conducting excellent corporate governance. A lot of directors have forgone salaries. A lot of companies have not paid dividends and are doing the right thing. A lot of good work has been going on, and I would like to see more recognition of that; let us recognise the good.
Although corporate governance is mentioned on the front of the Bill, it is about how we will suspend corporate governance. That may be for good reasons, but we should use the opportunity of the Bill, and particularly its Second Reading, to discuss how we are going to move corporate governance forward too. I would like to hear a little about that from the Minister when he winds up the debate.
Darren Jones (Bristol North West) (Lab)
I welcome the measures in the Bill, which will support struggling businesses during this difficult economic period, but, as other Members have said, this short-term relief needs to be followed quickly by a comprehensive recovery plan for the British economy.
For British businesses, this is a moment of genuine crisis. More than one in five companies across the economy, and an overwhelming majority of those in the worst affected sectors, have already been forced temporarily to cease trading. Survey after survey and the cases we have all encountered in our constituencies shed light on the depth of the anxiety that businesses and their employees are carrying about the coming months. I think there is an understanding across the House, therefore, that failure to act would have meant hundreds of thousands of fundamentally healthy businesses going under altogether, and that that would have been unacceptable.
In that context, the Bill’s time-limited provisions are a matter of necessity. The measures on wrongful trading, statutory demands, winding-up petitions and greater flexibility on governance constitute meaningful, if in some respects temporary, respite for struggling businesses. However, the urgency of responding to this crisis must not blind us to the deeper challenges that we face.
The measures we are debating will postpone the threat of insolvency, but giving workers and businesses real security about the future will require a more ambitious and better-targeted package of support. A significant majority of businesses that have continued to trade are currently reliant on some form of Government help. The success of that model has been its ability to deliver a one-size-fits-all remedy at pace, but the slowdown so far has been marked not just by its severity but by its unevenness.
The Business, Energy and Industrial Strategy Committee heard last month from the retail sector, for which the challenge is especially stark, with as many as a fifth of independent non-food retailers expecting to close for good and often in no position to take on additional debt. Tomorrow we will hear from the manufacturing and energy sectors, including aerospace, automotive and steel, whose needs are self-evidently of a different order, with a small number of major companies providing a significant percentage of British exports, but often reliant on a vast supply chain of small and medium enterprises, themselves in distress and in need of bespoke support. So as the economy reopens, the key measure of success for preventing insolvencies will be the Government’s ability to get help where it is required, on a sectoral basis, with a whole-supply-chain view.
Richard Fuller
It is a pleasure to serve on the Committee of which the hon. Member is Chair. I am interested to hear him talk about the differential impact on different sectors. He mentioned retail. Does he think that the Government’s policy to close retail was wrong?
Darren Jones
I do not. The public health emergency had to be dealt with, and understandably, it had consequences for the economic emergency we find ourselves in. Retail was one example that we heard from. However, I declare my constituency interests in the aerospace sector and in the transport sector, where evidently there will be a longer tail of damage to their business prospects than to other sectors of the economy that might be able to open sooner rather than later.
That is why we need a comprehensive recovery and growth plan, which, I understand from the Prime Minister at the Liaison Committee hearing last week, will be with us before the summer recess. That plan will need to take a strategic view on what the British economy should look like in the future, and what capacity, skills and production we therefore need to protect now—with, of course, the net zero transition baked in.
On corporate governance, which the Secretary of State noted today has been part of the longer-term thinking of this Government, I worry that the Government’s determination to act quickly in the Bill has come at the cost of bringing forward long-awaited reforms, as was so eloquently posited by the hon. Member for Huntingdon (Mr Djanogly). The failings that led to the collapses of Carillion and Thomas Cook, for example, and the impact of those failings on their employees, suppliers and customers, as well as the taxpayer, were the subject of extensive work by the BEIS Committee under the leadership of my hon. Friend the Member for Leeds West (Rachel Reeves), and that work underpinned serious reform-minded proposals to protect employees and the smaller suppliers, which too often suffer most.
In response to the Government’s 2018 consultation, Ministers also made repeated commitments to strengthen governance before the point of insolvency, for instance by better incentivising shareholders to take responsibility for performance.
I do not wish to set a panacea standard for the Bill, which I of course recognise needed to come forward quickly, but there was a welcome opportunity for the Government to have a bit more to show to bear out its claims of seriousness on this issue. With that in mind, I am curious to hear what commitments Ministers can make today to ensuring that the anticipated legislation on “Good Work”, following the Taylor report, and parallel legislation to reform the Financial Reporting Council into the Audit, Reporting and Governance Authority, are introduced to the House as soon as possible.
Relatedly, the BEIS Committee’s work in the last Parliament on curbing runaway executive pay and requiring proper reporting of the gender pay gap, alongside the question of how investment decisions on behalf of British savers and pensioners should be made in such a way as to bring society-wide benefits, in line with the stewardship code, constitute a challenge which I hope Ministers will rise to, if not in the Bill, then in the short future.
I understand the Government’s hesitation to reinvent the wheel with this specific piece of legislation, but I would welcome a clear statement of intent from Ministers today on the importance of rigorous corporate reporting—including on executive pay and the gender pay gap—and the centrality of building environmental, social and governance principles into investment decisions. I agree with other hon. Members that there have been many businesses acting in the best possible good faith in very difficult circumstances, but all of us recognise, as has been debated in the House today, that some businesses might be pushing that good faith too far, and where businesses are acting in bad faith, especially when in receipt of British taxpayers’ money, there ought to be at least consequences for the worst examples.
I appreciate the Government’s determination to act quickly, but moments of crisis should broaden, not constrain, our ambition to create a better future. The Bill will come as a genuine relief to businesses in the most difficult shape, and I of course support it. But its caution should be a matter of regret, and any such continued caution could yet be the undoing of the Government’s recovery efforts in the long term. In that spirit, I gently urge Ministers to be bold as well as decisive—so that the Bill forms the start, not the end. I look forward to further discussions on this topic before our Committee.
Mr Deputy Speaker (Mr Nigel Evans)
I call Chris Clarkson to make his maiden speech.
Chris Clarkson (Heywood and Middleton) (Con)
Thank you, Mr Deputy Speaker. It is a great privilege to be called to give my maiden speech as the first ever Conservative Member for Heywood and Middleton. May I add what a pleasure it is to see you, Mr Deputy Speaker, in the Chair when I do it?
Before going any further, I would just like to say what a pleasure it is to follow the hon. Member for Bristol North West (Darren Jones). I served very briefly with him on the Science and Technology Committee, and I would like to personally congratulate him on his election as Chair of the Business, Energy and Industrial Strategy Committee. I am sure he will bring his thorough, fair and forensic approach to scrutiny on that Committee, and I wish him well.
It has also come to my attention that I am one of the last of my intake to make my maiden speech. I would like to salute all my colleagues who have, through a varied and personal collection of speeches, shown that ours is a party that now truly represents the entire country. I would like to say in particular a great thank you to my hon. Friends the Members for Eastleigh (Paul Holmes), for Hyndburn (Sara Britcliffe) and for Bury South (Christian Wakeford), who have joined me to give a bit of moral support.
At this most challenging time for our country, I would like to dedicate my first speech to the people who are rising to that challenge, both in my constituency and across the four nations of our Union: our NHS staff, careworkers, armed forces, police, posties, bin men and the hundreds of thousands of other people working tirelessly to keep us safe. They truly embody the best of what it is to be British. I know that for my part, when I have been clapping on Thursday night, it has been not just with a sense of thanks, but with immense pride that this is a country that pulls together.
I am grateful to have been drawn to speak today. I can only imagine that, when Members saw the Corporate Insolvency and Governance Bill on the agenda, Mr Speaker’s office was inundated by people desperate to speak on this most glamorous of topics. Mr Speaker may have been inundated by anxious Members, but this particular subject—sexy or not—is of great importance. The Bill will do a great deal of good for a great deal of people, and really that is what we are here to do.
What must strike Members, as it does me, is the widespread support for the Bill, not just in my constituency but across the whole country. It has the support of businesses, professional bodies, the Institute of Directors, the TUC and the British Chambers of Commerce, which welcomed the Government’s sensible and flexible steps to protect businesses from the threats they face at this difficult time.
It is vital that urgent action is taken to help those struggling and worried for their businesses. By continuing to trade in these difficult times, they will be the turbo boost our economy needs as the new normal becomes the old normal. When we have asked so much of the British people, and they have given so much more than we asked of them, it is only right that we look to give those businesses and the people who run them the breathing room they need in the closest of economic climates.
The measures will ensure that essential supplies are maintained to support trade and that companies can maximise their chances of survival, saving livelihoods as well as lives. Quite simply, the Bill will help companies to increase their chances of going on when we need them most. It will protect jobs and underpin our country’s economic recovery. It consists of measures that will support businesses through this period and, where they need them, provide new lifelines to companies in desperate need of rescue.
The corporate governance measures give directors more flexibility during this emergency to focus on the things that really matter to them and their employees. According to a study by KPMG, the north and the midlands will bear the economic brunt of coronavirus, with a slump of up to 10% in the economy of my region, the north-west. Only with the injection of the common sense that the Bill affords can business owners have confidence that their contribution to our national recovery will be recognised with the appropriate safeguards. However, another study by Deloitte says that the north-west is the most optimistic region when it comes to recovery, and that is what we always bring with us. Whether it is Lancashire, Manchester, Merseyside, Cheshire or Cumbria, the north-west will be at the heart of this country’s economic recovery.
The Government’s commitment to levelling up has always relied on opportunity and aspiration. By safeguarding that through the measures in the Bill, we are keeping our promise to the people who put us on these Benches. I know that the Herculean efforts of the Secretary of State, the Chancellor and the BEIS and Treasury teams have been felt far and wide as livelihoods and businesses from Heywood to Hertfordshire and from Middleton to Middlesbrough have been saved by the decisive action of this Conservative Government.
Today’s Bill will reinforce that commitment to a one-nation, compassionate Conservative ideal. But in these exceptional times what truly define us are the acts of kindness all too easily forgotten, such as shopkeeper Damian Edwards of Alkrington, who has worked 22-hour days to ensure that the most vulnerable in his community will have the essentials that they need; the staff and students of Middleton Technology School and Hopwood Hall College, who are producing thousands of pieces of PPE for local key workers; my constituent Win Page, who celebrated her 100th birthday by raising over £15,000 for the North West Ambulance Service; and Mike Goldrick of Heywood, whose local blind manufacturing company is now producing scrubs for the local NHS trust. Those are just a few examples of the countless reasons why I am proud to represent Heywood and Middleton—some of the finest, most patriotic and enterprising people not just in the north, but in the whole country.
The events of December’s election may seem like a distant memory now, but it is important to remember what they signify. For years, the forgotten towns of the north and midlands have waited their turn, promised so much by the people they elected only to see themselves passed over time and again. In 2010, the then Chancellor of the Exchequer, George Osborne, took the first steps on the long journey to levelling up the north of England long before it was fashionable to do so. What we now call the northern powerhouse began as a labour of love, and now forms part of our central promise to this country. It is a promise that I and so many of my new colleagues intend to fulfil.
As well as paying tribute to the wonderful people in my constituency, it is only right that I pay tribute to those who have represented it before me. For five years Liz McInnes served the people of Heywood and Middleton, and holds the distinction of being the first and only woman to have represented the seat. Before her, Jim Dobbin served for 17 distinguished years and is still fondly remembered on both sides of the House as an active MP and a true gentleman.
On a personal note, I would like to reach a bit further back to my noble friend Lord Haselhurst, who now sits in the other place, and was the last Conservative MP for the Middleton and Prestwich constituency. He is the most recent Member of my party to represent any part of my seat. His kindness, mentorship and support have been greatly appreciated during my first months as a Member of this place, and, as my hon. Friend the Member for Saffron Walden (Kemi Badenoch) would no doubt agree, set a very high bar for those who come after.
I would also like to thank the people who helped me get here. Like so many across the Chamber, I was supported, encouraged and helped every step of the way by a dedicated group of friends, colleagues from my local party, the local community, councillors, activists and concerned local residents. This was as much their victory as it was mine, and that I stand here today is a testament to their selflessness.
At this unprecedented moment in our national history, when so many are giving so much, I must also recognise two more of my predecessors, who made the ultimate sacrifice for their country. Heywood has the unique distinction of being the only town to have lost its MP on active service during both world wars. Howard Cawley of the Liberal party died at Gallipoli, and Richard Porritt, a fellow Conservative whose coat of arms is on the wall of this Chamber, was killed during the evacuation of Dunkirk; he was the first Member of this House to lay down his life in the second world war.
I am a proud supporter of our armed forces. Their dedication to our nation and its people is humbling under normal circumstances. At this time of great stress, nothing demonstrates this dedication more than their extraordinary work transforming Manchester Central in under 10 days into one of several state-of-the-art Nightingale hospitals.
Heywood and Middleton is actually a relatively young constituency by parliamentary standards, having first been contested in 1983, but the towns within it have a long and rich history. Heywood is celebrating its 750th year as a town. Once famed for some of the finest textiles in the world, it also has an important part to play in the history of this place, as the home of Lord Heywood, who foiled the gunpowder plot. I will simply say to hon. Members on behalf of my constituents: you’re welcome.
Middleton—a town conspicuously missing from the Domesday Book, bar a passing reference to being “of great antiquity”—is home not only to Manchester’s oldest church, St Leonard’s, but also to England’s oldest pub, The Olde Boar’s Head, a beautiful timber-framed building originally built in 1632. I am pleased to say that I have frequented both, although, I will admit, one more than the other.
Lastly, in a remark that will no doubt prohibit me from any future position in the Treasury, although maybe not in the Department for Business, Energy and Industrial Strategy, mine is a seat of three halves; beyond the eponymous Heywood and Middleton, it also includes the western reaches of the town of Rochdale. The communities of Bamford, Castleton and Norden—all villages in their own right—have much to boast about, with beautiful green spaces, thriving local businesses, excellent schools and, of course, yet more superb pubs, all of which we dearly hope to see reopen shortly. These communities also require protection, as their precious green belt is under threat, and I will stand with fellow Members across the House and community groups in opposing the disastrous Greater Manchester spatial framework.
It is all too easy endlessly to wax lyrical about what an immense privilege it is to be stood here, but in all honesty I doubt that words could ever truly convey the reality of what it is to be entrusted with this responsibility. In ancient Rome, our predecessors in the Senate would invoke the maxim “Acta non verba”. As ancient as that concept is, it is not one lost to time. One of Manchester’s greatest daughters, Emmeline Pankhurst, was still calling people to action with the cry of “Deeds not words” hundreds of years later, and it holds as true today as it did then. When we get through this crisis—and we will get through it—it will ultimately be our deeds, not our words alone, that will do it.
Stephen Kinnock (Aberavon) (Lab)
May I say what a pleasure it is to follow the hon. Member for Heywood and Middleton (Chris Clarkson), who has paid a passionate and upbeat tribute to his constituency? It is the tradition in this House that when one gives a maiden speech, one is usually surrounded by one’s colleagues in a so-called doughnut. I congratulate the hon. Gentleman on giving the first ever maiden speech with a socially distanced doughnut.
Let me begin by saying that I support wholeheartedly the aims of the Corporate Insolvency and Governance Bill. This is a welcome response and a much-needed one in the crisis times in which we find ourselves. However, the changes are and must be just a small part of the rescue and recovery package that will be required in the long term. This Bill will provide short-term relief from overbearing creditors and give necessary protections, but to avoid a wave of insolvencies as we come off the back of this crisis and those protections begin to recede—a situation that would profoundly damage livelihoods and might have just as many damaging public health consequences as the immediate effects of the crisis—we need to have a plan for the long term that will enable our economy to bounce back in a sustainable manner. This means that the Government must go further and they must go faster.
These needs for ambition and urgency are particularly relevant to the steel industry. It is the largest employer in my Aberavon constituency, with 4,000 well-paid jobs directly employed in the Tata steelworks in Port Talbot, but with many thousands more in the supply chain. Nationwide, the UK steel industry employs 32,000 people and contributes £3.2 billion to mitigating our balance of trade deficit through the exports that are produced. It contributes £5.5 billion to the economy directly and through supply chains, and each job pays on average 28% higher than the average UK job. Indeed, steel is the very backbone of our whole manufacturing sector—from defence to transport to infrastructure—and there can and will be no post-pandemic economic recovery for our country without a strong and healthy steel industry.
As my right hon. Friend the Member for Doncaster North (Edward Miliband), the shadow Business Secretary, has rightly said, the support to the steel industry has been far too slow, and it finds itself now teetering on the edge of the abyss. I do not understand why the French and German steel industries received the liquidity injections they required, backed by their respective Governments, within 10 days of their respective lockdowns starting, yet not a single penny of Government liquidity has been made available to the British steel industry to date. I think we do need an explanation of why it has been so slow.
My worry was that the reason might be that some on the Government Benches have given up on the steel industry. I do not believe that to be the case. I do truly believe and hope that the silver lining from this dark coronavirus cloud may be that the UK Government finally recognise the need to support industries of vital strategic, foundational importance, such as the steel industry, and also that they will begin to acknowledge the value of more localised and shorter supply chains.
What we need, coming off the back of this crisis, is nothing short of a manufacturing renaissance in our country. If we are to grow the economy to meet the challenges presented by climate change, by the social care crisis and by the need to rebuild our economy post-pandemic in a serious, sustainable and balanced manner, we must significantly boost our manufacturing sector. It is currently languishing at 9% of GDP. I would strongly recommend that the Government set an ambitious target of boosting manufacturing to 15% of GDP by the end of this Parliament. We know that the Government like to chase targets. Let us have a target that can actually pull our economy together and rebuild it on the basis of a manufacturing renaissance.
Boosting manufacturing is a win-win-win in so many areas. Our economy is currently dangerously skewed towards consumption and debt. Manufacturing is about production, and that is the kind of shift that we need to make. It would boost productivity, and it is far easier to make productivity wins in manufacturing than in the services sector. It would rebalance the economy and correct the massive geographical gap that exists between the wealthiest region in our country—London and the south-east—and the poorest regions. It would reduce our reliance on China. Just look at the issues around PPE: 40% of the world’s PPE is manufactured in China. We surely cannot go back to having strategic dependence on a country such as China, which so patently does not share our democratic values and ideals.
The steel industry must underpin this manufacturing renaissance. Successive Conservative Governments have unfortunately failed to support the steel industry sufficiently over the past 10 years. For instance, UK steelmakers pay 80% more for their electricity than their French counterparts, and 62% more than their counterparts in Germany. Now, during the pandemic, the Government have failed to come up with the size of loan and liquidity for the cash-flow crisis that Tata Steel, the owner of the Port Talbot steelworks in my constituency, is facing. It is the UK’s biggest steelmaker. It asked the Government for a loan—I stress that it would be a loan, which the company would of course be contractually obliged to repay—to cover the £500 million cash flow black hole that has been caused by coronavirus for the company. The Government recently increased their large business interruption loan scheme to a £200 million cap, but that still falls well short of what the company requires to plug that temporary gap in its cash flow. What a contrast, as I say, with the French and German Governments’ actions. Within 10 days, their steel industries had the liquidity injection that they required.
The Government have now introduced Project Birch, which aims to support those larger companies that did not fall within the parameters of the business loan interruption scheme. However, we know very little about how Project Birch is going to work. Yet again, I am concerned that coming forward with a new initiative could set back the work that has been done under the framework of the previous initiative. It almost feels like we are back to square one. With every day that goes by, the British steel industry teeters closer to the abyss, so I urge the Government to make this their top priority. We need to see the action that is required happening with the greatest possible urgency. My right hon. Friend the Member for Doncaster North and my hon. Friend the Member for Manchester Central (Lucy Powell) have recently written to the Government demanding more action on UK steel, and I thank them for their efforts.
The Government must also urgently recognise that the cost of doing nothing is so much greater to the UK taxpayer than the cost of intervening. Previous research from the IPPR think-tank suggests that the loss of 4,000 well-paid steel jobs could cost the Exchequer almost £1 billion over 10 years, and that is before we count the astronomical capital expenditure cost of decommissioning the blast furnaces and steelworks. The structural cost of putting thousands of well-paid workers on to benefits, combined with the capital expenditure costs of decommissioning, would be absolutely astronomical for the British taxpayer. It would be the definition of a false economy.
The British steel industry is a 21st century industry. It builds the offices we work in, the cars we drive and the homes we live in. It is a cutting-edge industry that is doing so much to promote green growth. There is a project involving Tata Steel and Swansea University just next to my constituency called SPECIFIC, which is creating photovoltaic cells on the basis of a steel-based film, which could turn every home and office in our country into a power station. That is a steel-based product. We are not talking about metal bashing; we are talking about cutting-edge technology and manufacturing. We need to support the backbone of our manufacturing sector that is the British steel industry. We cannot afford to let that backbone break at this crucial time.
The legislation has also missed other opportunities. The Government should be bringing forward long-awaited reforms of corporate governance. I fully support my hon. Friend the Member for Bristol North West (Darren Jones), the Chair of the BEIS Committee, who I congratulate on his recent election to that position. We should ensure that directors do not focus only on profit. They must also focus on people and planet. There needs to be a triple bottom line reporting structure, and the first step is to amend section 172 of the Companies Act 2006. We need companies to adopt a much broader responsibility, not only to narrow shareholder needs and aims, but to a much broader-based stakeholder approach in setting their corporate objectives and mission.
On that note, I commend the work of my right hon. Friend the Member for Doncaster North (Edward Miliband) in his role as shadow BEIS Secretary. He has made it clear that we need a green, sustainable recovery by creating, in his words, an army of zero-carbon workers by retraining and redeploying those who cannot work into different industries. That churn will be essential as we enter the new paradigm of the post-pandemic economy and could apply in areas from home insulation to wind turbine manufacture. These are the opportunities that we see.
My right hon. Friend has also rightly pointed out that those companies that receive state support through this crisis owe obligations to the taxpayer. Those registered in tax havens who want support should come onshore before they get it. Multinationals that plan to pay dividends to shareholders while claiming the Government resources do not need to be doing that. We could also be more creative. In the long term, the Government should consider turning Project Birch into a sovereign wealth fund of the type that has boosted the prosperity of countries such as Singapore and Norway.
Let us ensure that we use this recovery to form a new partnership between Government and business—a partnership that will benefit the whole economy. Let us use this crisis as an opportunity to rethink, redesign and rebuild the British economy. However, the urgent, No. 1 priority now must be to protect the backbone of our economy, our UK steel industry; because without a strong and healthy steel industry, there can be no post-pandemic economic recovery.
Mr Deputy Speaker (Mr Nigel Evans)
It is always good to hear Swansea University get a good mention—yes, I went there.
Mark Pawsey (Rugby) (Con)
It is a pleasure to follow the hon. Member for Aberavon (Stephen Kinnock) and his passionate response to the issues facing the steel industry, and also to hear the maiden speech of my hon. Friend the Member for Heywood and Middleton (Chris Clarkson), who seemed rather bothered that he was among the last of his intake to deliver his maiden speech. I would say to him there is nothing wrong in leaving the best till last.
I draw the House’s attention to my entry in the Register of Members’ Interests. I support the Bill and the measures it provides for business. I ran a business for many years before becoming to this place and recognise the many challenges that business owners and managers face at this difficult time. We were reminded of that by the Chairman of the Select Committee, who talked about the survey showing that 80% of manufacturing companies have seen orders fall, while 20% have seen their order books halved. These are substantial reductions in demand, and there are some sectors of the economy, in retail and hospitality, where trade is non-existent. However, those businesses continue to incur costs. Many of those costs have been defrayed by Government support, but that will never match the expense needed to keep a business going.
At the same time, many businesses face delayed payment by their suppliers, many of which would legitimately say that they are not able to pay their bills because they are not trading and do not have money coming in. The Select Committee recently spoke to the Small Business Commissioner, who is going to need to be very busy and active.
In the face of all this, the Government have been incredibly quick to respond with a broad range of measures. I thought it was rather churlish of the shadow Secretary of State not to acknowledge the great support that the Federation of Small Businesses, the chambers of commerce and the Institute of Directors have given to the many measures that businesses brought out at great pace. Everything was done very quickly. We need to see the Bill in the light of those measures: it is part of a package of measures available to support businesses in a very difficult time. Of course, the measures in the Bill have been introduced quickly. There has been some criticism of the amount of time it took to get the Bill ready and that we have to scrutinise it, but these are important measures that will support businesses and keep them alive. We need to get them on the statute book to enable businesses to survive these exceptional times.
It is important to look at the permanent measures and the temporary measures. On the permanent measures, the protection from creditors, which provides a breathing space in which businesses can adjust to a new reality to get provisions in place, is incredibly important. Such protections will be taken up by businesses that, but for this pandemic, would have been trading completely profitably over recent months. It is not the fault of the company or directors that they are faced with these challenges. It is of course in our interests—it is in the public interest—for us to enable company rescue and to prevent the failure of businesses that are experiencing short-term problems.
Many of the measures in the Bill have been described as heading in the direction of chapter 11 as exists in the United States. They do not go quite that far, but they are important steps in the right direction. It is important to remember that in many cases the companies that will be supported by the process we are discussing will be ones that have received Government support in recent months, with staff furloughed or the businesses having received grants—companies to which public funds have already been committed. It is important to consider the fact that the Bill will ensure that that earlier funding—that public money that has been made available—does not go to waste. It will be a huge shame if we do not protect those businesses that have had Government support over the past few months.
The Bill will introduce a moratorium during which no legal action can be taken. I discussed with a recovery specialist the appropriateness of the amount of time that the Bill gives for that, which is 20 working days—in essence, a month, for most of us—extendable to two months. He said to me that in the context of a company restructuring that is actually not a lot of time. It can of course be extended, but for a creditor of the company who is waiting to find out what the future is going to hold and how much of the debt they are due is going to be repaid, a month or two can be a pretty long time. We need to respect the position of all the people involved. During that time there will be a payment holiday during which suppliers will not be paid.
There is then, of course, the restriction on enforcement action that a creditor can bring, which I shall talk about in a moment. That provision covers landlords, who are often being painted as the villain of the piece, taking aggressive action against companies in many cases; it seems to me that in some instances landlords need to have a view about their own better interests, and it may be better for a landlord to retain a tenant in a building, continuing to trade with Government support, and to keep the tenant in there while deferring rent, rather than the landlord ending up with an empty property for which, after a period of time, they will pick up a liability for the business rates.
Under the provisions of the Bill, companies will be able to use their breathing space to re-forecast their business. One of the challenges with the loans that we have already discussed this afternoon is how someone prepares a cash-flow forecast for a business for which the previous three months have been completely out of kilter with the historic trading pattern of the business. For directors and business owners who are in that position that would be incredibly difficult. I used to run my business on an annual basis, and would prepare my business forecast in October or November ready for January trading. I knew exactly the pattern of trade for my business, which remained remarkably stable year after year. I am incredibly sorry for businesses that have to go through that right now, as it must be extremely difficult.
I wish to raise with the Minister concerns about the termination clauses and the ipso facto change, which is permanent. If a supplier ceases to supply because of impending insolvency, that action, in critical cases, could lead to failure. Having run a business, I know that if a large debt builds up with a customer and payments are weeks and months overdue, the only action that a supplier can take is to cease supply. Businesses are often reluctant to do that, but they should have more courage and confidence in what they supply to the customer and the terms and conditions of their deal.
Richard Fuller
My hon. Friend is making an important point. Does he share my concern that there is a certain vagueness about what continuing supply might mean for a business in crisis? Does it mean that the historic pattern of supply should be continued? Does it mean that a company that is potentially insolvent has the right to demand a much greater increase in supply? It is very unclear.
Mark Pawsey
That is a good point, and I hope that the Minister will consider that, because in many cases a contract has been entered into on the basis of a certain volume of business. Many businesses have contracted, so a purchasing company may not be buying the same volume. Does that provide the ability to keep the price at the original position? Price and volume go hand in hand, and there may be additional economies of scale. There are concerns, and I know that the Minister will respond.
My hon. Friend the Member for Huntingdon (Mr Djanogly) raised the issue of debts accruing because of extended payment terms. Buyers are often more interested in payment terms than the price of the product. A buyer does a great job if he manages to screw 60 or 90-day payment terms out of a supplier, rather than a particularly good deal on the product. If we can move our culture away from extended credit many of the provisions in the Bill would be rather less necessary than they are. The Minister will deal with those issues, and it is entirely right that in the Bill he guarantees that supplies that are made during the moratorium are exempt—the supplier is guaranteed to be paid once the monitor has agreed that they will continue to trade. That goes some way towards providing substantial confidence to the supplier. I am also happy with the exemption from the provisions for small companies. As the Secretary of State has said at the Dispatch Box, the usual criteria on size apply.
I want to conclude with the temporary suspension of the rules on wrongful trading, which I entirely support. Right now, business directors around the country are pretty worried about the financial viability of their businesses and their liabilities if they continue to trade, particularly if the trade position continues to worsen. The current rules are that they could be liable personally if they do not bring their business to a conclusion, even though the challenges facing those businesses are not of their making. Relaxation of those wrongful trading provisions will enable many directors across the country to sleep rather more soundly at night.
Jerome Mayhew (Broadland) (Con)
Could I just come back on that interesting point about the risk of personal liability hanging over directors? I declare an interest, as I am a director of a trading business. It fits very well, does my hon. Friend not agree, with the development of the CBIL scheme? Originally, that scheme was not very popular, because many banks insisted on personal liability for businesses and for the directors of businesses to stand behind the loans that they were giving. The current scheme removes the risk of personal liability for directors via the scheme.
Mark Pawsey
My hon. Friend makes a good point, and we must provide every support to business owners and directors at this challenging time, to allow them to make decisions that will enable their businesses to continue to survive.
Ian Paisley (North Antrim) (DUP)
I declare an interest as I am a director on the board of a couple of charities. Extraordinary and unprecedented times call for very special measures. Without doubt, the Government have produced ultra-special measures to deal with the times in which we find ourselves because of the economic crisis, which has been stimulated by the covid-19 crisis that is upon our nation. I welcome the measures that the Government have taken. As I said in an earlier intervention on the Secretary of State, if Northern Ireland had not received support from the Government and those special measures, quite frankly the place would have gone bust. Those special measures indicated the strength of this Union—they kept it together and demonstrated that, to use a worn-out phrase, we are all in this together, and that, as a nation, we are able to help each other through in difficult times. That is to be commended.
There are businesses across my constituency, and up and down Northern Ireland—indeed, across the entire United Kingdom—that have survived only as a result of the extraordinary and special measures that have been put in place. I believe that we should put on record our thanks and gratitude for the fleet-of-foot way that those measures were put in place for us all.
At times, there has also been a reluctance by other sectors to step up to the mark, and I think the banks could have acted quicker. Most of the complaints that I have had to deal with came from companies that were trading, but that ran into the brick wall of the current crisis. When they approached the banks, which the Government were supporting and encouraging people to support, suddenly the banks put up road blocks and hurdles for people to cross. Of course banks must ensure that they are guaranteed to get their money back and be able to lend fairly, but to put up extraordinary road blocks in front of some companies was incredibly naive at this time, and it left a sour taste in many people’s mouths. I have spoken to some traders in my constituency who say that one of the first things they will look into as soon as this crisis is over is changing their bank because of the way they have been treated. That is a bad mark; that should not have happened or been part of this process.
Other Members have said that what is now required is an economic stimulus, and two or three important steps could be taken almost immediately to help to stimulate the economy. First, we must think differently and think big. Our country deserves a Government who demonstrate that they will provide leadership. Indeed, it has been said that without a vision the people perish, and it is imperative that the Government provide a vision, think big, and demonstrate that they are going to invest in infrastructure and stimulate the economy. They need to invest in bridges, roads, and other things to drive the economy forward. They must encourage Heathrow to get back to developing its hub plan for all regions of the United Kingdom, and stimulate that in a way that provides a vote of confidence that the economy will turn the corner, and do very well once it has.
The Government could also consider other special measures. Members have mentioned some of them, such as coupons or bonds that could be backed by Government money to help stimulate certain sectors, such as the arts or sport. Sovereign wealth funds were also mentioned, and the Government could invest in those. I think that is a good idea. It could even be pushed on to local devolved institutions, which should be looking at regional wealth funds to help stimulate the economy directly.
The huge issue that I really want the Government to look at is new technology. This is an opportunity to stimulate the economy with new technology through, for example, measures to support the development of a hydrogen hub and hydrogen power. We are a potential world leader in that new technology, which will generate employment in the manufacturing sector, use the steel made in this country to produce goods and ensure that we are able to provide something that is zero-carbon and will help the environment. We should be looking at such measures.
I am delighted that the Bill’s provisions are extended to Northern Ireland. I raised with the Secretary of State at the beginning of the debate the fact that these are temporary measures—indeed, they will expire in about 27 days if approved today. I think that they will need to be extended well beyond that. I agree with Members who have said that the earliest these measures should elapse is September, or even the end of the year, so that people have time to use the provisions that the Government have given them.
There are a number of core measures in this legislation, which I support, to provide companies with the best chance of surviving the financial difficulties of the covid-19 crisis. Providing insolvency breathing space is essential. The protection from threat of personal liability and aggressive creditor action during this crisis has been mentioned by many Members, and I agree with those provisions. Providing a temporary relaxation of rules surrounding meetings and filings during this time is also very important. The Bill introduces a free-standing moratorium for UK companies, overseen by an insolvency practitioner, to allow time for the rescue conditions to apply, with the moratorium ending if it is unlikely that the company will ultimately be rescued.
Northern Ireland is affected by this legislation in the following way. Clause 4, which inserts new part 1A into the Insolvency (Northern Ireland) Order 1989, and schedules 5 and 6 mean that the moratorium provisions are practically the same in Northern Ireland and GB. Clause 5 and schedule 7 are similar to schedule 3 for GB. Clause 6 and schedule 8 outline the timescale for these provisions and powers for the Department for the Economy. I encourage the Minister to keep in close contact with the Minister in Northern Ireland and the Executive, to ensure that the good flow of conversation and in-step approach remain, so that we can utilise the best provisions being made here at Westminster.
Clause 11 temporarily suspends liability for wrongful trading under the Insolvency (Northern Ireland) Order 1989. Clauses 14 to 17, on termination clauses, amend article 197 of the 1989 Order to cover new categories of electricity provider, suppliers of IT goods and services, which is very relevant today, and cases where utility supplies are made by a landlord, and grant a temporary exclusion for small suppliers similar to GB. Those measures are very important for small businesses in particular. Clauses 26 to 33 outline the powers available to amend corporate insolvency or governance legislation in Northern Ireland.
The inclusion of Northern Ireland in this legislation is most welcome. The measures bringing corporate insolvency more into line with that of Great Britain, at least during this time of crisis, are a vote of confidence, in that we are all going to have to emerge from this together—we will have to pool our strengths, share our responsibilities and make sure that the entire kingdom enjoys the opportunity of emerging from this crisis united, stronger and better.
This important legislation supports our companies through the financial difficulties of covid-19. What other measures has the Minister considered to continue to help companies after the initial threat of covid-19 has passed? It is important that we look beyond this. This has to be temporary. We do not want to see this as the main way forward. I hope the Minister will provide the sort of vision we talked about earlier and to which other Members have referred in their speeches. The importance of collaboration across the United Kingdom to help and strengthen our economy is the cornerstone of this proposed legislation. I hope it gets a fair wind. It will certainly have the support of Members of my party in the House today.
Damian Collins (Folkestone and Hythe) (Con)
I start by congratulating my hon. Friend the Member for Heywood and Middleton (Chris Clarkson) on an excellent maiden speech. It made me feel slightly nostalgic, because I made my maiden speech—I was trying to work it out— 10 years and one week ago. In addition to that, I made my maiden speech immediately following the hon. Member for North Antrim (Ian Paisley), who has just spoken. The right hon. Member for Doncaster North (Edward Miliband) opened for the Opposition on that occasion as well, so there are a lot of similarities even though we are talking about a different topic today.
I rise to speak in support of the Bill. It has a lot of practical and important measures to support businesses, particularly in my coastal constituency which has many businesses in the hospitality sector. They are particularly badly affected because trade cannot resume as normal. As many Members will know, businesses in the hospitality sector do not necessarily make all their money at an even pace every month throughout the year. They are effectively losing much of the summer season when they would usually seek to raise the revenue that sees them through the rest of the year. Extra financial support at this time is therefore particularly important for businesses in that sector and I welcome it strongly for that reason.
I would like to speak about one sector that is not covered by the provisions in the Bill. I do not believe it is covered by any of the measures that have been put in place so far. It does have rather unique circumstances, but I believe it is a very important sector because of the unique role it plays in our national life—professional football. Professional football clubs are unusual businesses. They have very high turnovers but operate at very small margins. Many people would say that the big clubs in the premier league have a huge amount of money that they spend on players, but most of the income they receive is tied up in the contracts of the players who play for them. They do not necessarily have very much cash.
Clubs in league one and league two are particularly vulnerable because their revenues do not come from broadcasting. Most of the income for big clubs such as Manchester United, Manchester City or Liverpool comes from people around the world watching them play on television. For them to play behind closed doors and receive that broadcasting money gives them the money to succeed. However, for clubs that play in tier 3 and tier 4 in league one and league two, the vast majority of their income comes from playing live in front of spectators. Without that income, they have no revenue. What they have is a series of fixed costs.
The reason professional football clubs have fixed costs is that, unlike almost all other businesses in this country, they cannot restructure their debts and finances by going into administration. They are bound by the laws of their leagues to pay all their football debts in full, including player salaries and transfer fees. Unless they can meet all those costs, they will be expelled from the league. This is an application of a rule that has been the subject of court cases by HMRC and of much debate on matters to do with football club insolvency in this House in my 10 years here. That is a rule called the football creditors rule. It is a rule created by the football leagues for competition reasons to ensure that clubs cannot over-extend themselves, buy better players that they cannot really afford, go into administration to clear their debts and then resume. They have to be consistent in what they can afford through the season, but it does mean that they do not have the option of restructuring their debts. Their obligations and major outgoings are largely going to be the fixed costs of paying players.
There have already been a number of warnings that we will see this summer, because of the financial distress of lots of clubs, the mass release of a large number of players. It has been estimated that up to 1,400 players may be released without being re-signed. We had a small foretaste of that in Scotland last week when Dunfermline Athletic released 17 players.
More troubling over the next few weeks will be the fact that many smaller clubs supplement their income during the summer months when they are not playing through advance sales for the following season. Advance sales of season tickets normally come through in June, which is also when advertisers will make bookings, as will people taking out matchday hospitality packages. That money comes in in June and July and keeps the clubs going while they are not playing, but it is not going to come through now because these would be advance sales for a season that has no start date and no one knows how long it will be before things go back to anything like normal. That affects the whole hospitality sector. As I said, it is less of a problem for those in the premier league, because as long as they are playing on television, although there will be some loss of income because the package is not quite the same as it would normally be, they will still be getting their money in that way, whereas other clubs will not. There is a severe danger that some clubs will simply run out of cash in the next weeks.
Kevin Hollinrake
My hon. Friend is making an important point. Is he aware that some banks have a blanket restriction on lending money to football clubs and are applying that restriction to CBILS as well, so even though the Government support is not supposed to have a sector-based restriction, this is being applied to football clubs?
Damian Collins
My hon. Friend makes an incredibly important point, which has pre-empted what I was going to come on to say, although I would not make the point in quite that way. There is no doubt that football clubs would count as businesses in difficulty for a lot of lenders. The clubs that will be the most severely affected will be those that are probably trading at a loss, that have a history of debt and that rely on owners’ loans to make ends meet. They are going to be in a position soon where the cash that normally comes into the business has dried up, and even if the owner has the capability they are probably left trying to put money back into the club so that it can carry on paying the players, even though the players are not playing. The furlough scheme is great for ground staff, but it covers only a small percentage of a player’s wages, even for some of those playing in league one. So these businesses, such as they are, are going to be drained of cash, with no ability to supplement it, and they will be being asked to compete in sporting competitions and leagues where unless they pay these bills they will be kicked out.
Administrators and company voluntary arrangements for football clubs have always faced that problem, whereby even if they try to honour all the creditors at the same amount and they do not pay all the football debts in full, the club loses it golden share to play and therefore the business is almost worthless. So the administrator will honour the rules of the league, which also has the dire consequence of meaning that other local businesses that supply the club get almost nothing when a club goes bust. What we saw with Bury last year is that if no one will come and put the money in, nothing can be done and the club is expelled from the league. That is the position we are going to be in. How attractive is it going to be for an owner or a new owner to put money into a club that is running at a loss, and that has no income and no prospect of any income any time soon—perhaps for another year?
Even the idea of simply mothballing these organisations until competitive football can restart is not going to be viable, because they are bound by their contracts to their playing staff and other people, which are high. I was told by someone from the Premier League that it will probably lose £300 million in broadcasting from this season, which it will have to repay. There are liabilities in transfer payments to other clubs, in this country and around the world, of more than £1 billion, which will nevertheless have to be fulfilled. So there are real problems ahead and no ready solutions on the table for these clubs. We do need a credible plan on this. The Government could initiate a conversation with the football authorities to say that the suspension of the football creditors rule, to help clubs restructure their finances, alongside some support, would be the moment for genuine reform.
What I do not believe we should do with these businesses is chuck good money after bad. Some clubs have been poorly run and in financial distress for many years, and supporting them in that way would simply be throwing good money after bad. This is an opportunity to give many clubs the support they will need to get them through the next few months, recognising that football clubs in leagues one and two are community businesses and organisations. They are valued by and at the heart of their community, and they mean a lot to their community. These clubs should be sustained because they are very important to those communities.
What I suggest—this was referred to early in the debate when Project Birch was mentioned—is that we could look at acquiring, with public money, minority stakes in football clubs, which will give them the cash injection they need to keep going. I suggest creating an independently run fund with some public money and some money from the football bodies, in a similar way to how the Football Foundation operates to fund grassroots football. With those equity stakes to keep clubs going, there should be an opportunity for a supporters trust or a community organisation to then acquire those stakes. That would give the public resources the money back and would give the communities an opportunity to acquire a stake in the club and have much greater oversight of how it is run.
With a mechanism such as that, independent directors could be appointed to the boards of clubs, to have proper oversight and real-time financial information about how these clubs are being run. One reason why clubs are constantly in debt and difficulty is that they manage to get around the rules set for Football League clubs. Clubs in leagues one and two are supposed to spend only about 60% of their income on player salaries, but last year’s report by Deloitte showed the real figure is more like 80% or 90%. With much closer scrutiny of how they are spending their money, and with oversight by independent directors, we could start to put some of those issues right.
Football probably needs an independent body—an independent financial authority—to oversee these issues. One perennial problem in football, particularly in the Football League, is that it is really run by the chairmen of the 72 clubs in it and they are not that interested in having close oversight and scrutiny of what they do. The executive of the Football League has no real power, as these people report back to the chairmen. Therefore, an independent body to oversee all that could be important. We need to think of a creative solution that will not only provide financial stability, but create reform in the finances of football to put these clubs on a more even keel and create an opportunity for community investment and ownership in the longer term as well.
Whatever model we choose, coming fast down the track will be the problem that multiple clubs will start running out of money very soon. The problems that we saw last summer with Bury and Bolton and other communities in Portsmouth, Hereford and Darlington that have been through this before could be repeated by one club after another in the next few weeks. We need to know what the plan is, because the plan is not in this Bill—great though this Bill is. It is not in the measures that have been introduced elsewhere by Government. This is a big loophole that has to be closed.
Richard Fuller (North East Bedfordshire) (Con)
I draw the attention of hon. Members to my entry in the Register of Members’ Financial Interests.
Mr Deputy Speaker, you know, as you have been listening to this debate, that many speakers have put this Bill in the context of the current economic situation and so perhaps I shall start by providing some of my own views. I am taken back not to when I gave my maiden speech, but to about 72 days ago when this House voted through the measures that have had the economic consequences that we are now debating how to mitigate. Seventy-two days ago, every single Member of this House—me included—supported or acquiesced in the measures that have destroyed parts of our economy and put many others on life support. So how should we come into this debate? We should follow the line that the Secretary of State took: he came here with a sense of humility that these were measures that the Government had to take. He came here not with hubris, but with humility, because I think he understood that the hands of politicians—of all of us—are all over the fact that so many hundreds of thousands of businesses in our country are facing such terrible times and that so many millions of people who are in employment, or who think they are in employment because they have been furloughed, are facing some severe economic consequences as a result.
It was our decision—the decision of every single Member of Parliament—to close the economy down, and we seek to excise from our collective memory the fact that there was any other choice. We say that we had to do it, there was no other option, but of course there were other options. Other countries have followed other paths. This was the path that every single Member of this Parliament chose, and we did it because we were frightened. We did it because we were uncertain. There is nothing particularly wrong with fear and uncertainty, but, my goodness, what a cost it will bring to our economy.
The Secretary of State was absolutely right to bring this Bill forward and to do it in such a humble way. What a shame it is, as I have sat here listening to the contributions of other MPs, that that humility has not been reflected in those contributions. No, having wrought this destruction on our economy, Members of Parliament now want to rush forward with their own ideas about how they can make the economy better, how they can make it greener, how they can level it up, and how they can give employees more rights. It is as if the parsecs of collective experience in this House of running businesses make us suitable champions for the economy of the future.
We should learn some humility. If there is one message that I have for the Government and for all politicians here it is to get your sticky fingers off British business. We should let the business leaders of this country find their way back. We should say that we are sorry for destroying lifetimes of work in a rushed decision to close down the economy. People who have been forced to see all their efforts come to nothing have spent every hour of those 72 days worrying about whether they can continue to employ their workers, and worrying about whether they can sustain themselves and their families. That angst and that anxiety stems from the decisions that we made in this House. Let us have some humility, let us follow the guidance of those on the Front Bench in this debate and let us not seek an opportunity for more political meddling in our economy as a result of what we have done. I am glad to have got that off my chest.
The corporate insolvency measures in the Bill seek to address this most extreme consequence of the actions we have taken, and therefore it is quite right that this is one of the first Bills the Government are bringing forward to deal with what the economy faces. I support the measures that the Government are putting in place. It is right to bring forward greater flexibility in the insolvency regime and, as many Members have mentioned, this has been welcomed across much of industry and the professional services, and has had plenty of time for discourse and debate.
It is also right that there should be a temporary suspension of insolvency laws to enable companies to trade through this emergency. I know from my own experience as a director that the issue of personal liability, particularly in relation to going concern, is one of absolute centrality to directors. As my hon. Friend the Member for Rugby (Mark Pawsey) mentioned, it is extremely difficult for many businesses to produce a forecast in such difficult times that will provide the certainty that the directors are actually producing a forecast that is real and achievable. Indeed, as many Members have mentioned, when it comes to banks and CBILS, banks themselves have found it very difficult to interpret the forecasts that companies are putting forward. As for the temporary easing of requirements, that seems to me to be a housekeeping exercise that the Government have judged adroitly and correctly.
I have some questions for my hon. Friend the Minister. The first is about the reputation of the UK as a safe haven for capital. We have had tremendous experience of attracting foreign investment, both in equity and debt. Is he assured that that reputation is going to continue? The efficient allocation of capital is a hallmark of an effective economy. Have the measures in this Bill been checked to ensure that all providers of debt financing to our businesses understand, accept and support the changes that he is bringing forward?
On the housekeeping measure of filing annual accounts, as the Minister will be aware, the availability of updated information is quite crucial for investors and others to make judicious decisions. Of course, there is always access to the private accounts of businesses, but in the public domain those evaluations are quite important. In his judgment about whether to extend that, he will certainly want to bear in mind the consequences for extensions of that particular aspect.
In his opening speech, the Leader of the Opposition—I do apologise; the right hon. Member for Doncaster North (Edward Miliband) used to be the Leader of the Opposition, but is now the Opposition spokesman on business—talked about some very important issues relating to the balance of rights, particularly with regard to employees and the protection of pension assets. This is something that I think the Government should consider. In fact, the shadow Secretary of State was kind enough to say that this is something the Government are considering, and I think it is right for all of us to consider what the impact of the pressure on employees will be. We saw during the urgent question earlier about the bare-knuckle behaviour of the management of British Airways that desperate situations sometimes bring forward desperate attitudes, and the long-standing rights that employees felt they had no longer seem to have any currency, so that seems very pertinent to this part of the Bill.
On the cross-class clampdown, the Government are bringing forward the ability for a court to decide whether a particular class of creditors who have not themselves agreed to a settlement should be forced to accept a settlement. We have no experience in this country—perhaps we do, and the Minister could tell me if so, but I am not aware of it—of courts being able to decide between the equitable rights of one class of creditors and those of another class of creditors in coming to a conclusion that is right for all in the round. What are the Government’s thoughts about what would be required from the courts in coming to those judgments? What is required in terms of disclosure from the courts that might be useful for the Government and the public to know? What is the Government’s view about whether there will be emerging patterns of response from the courts as they come to those intra-class decisions?
Bim Afolami
I have done several schemes of arrangement in my previous life, and know that the courts are very used to them. We are talking about an instance where a minority of creditors would effectively be outvoted by a majority agreeing to the scheme beforehand—something that currently requires unanimity. The difference between what we have now and where we are going is therefore not actually that significant, as long as an objective judgment can be made—judges can do that; they do it all the time in the High Court—as to the financial benefit, or lack thereof, of a particular scheme to a particular creditor.
Richard Fuller
I am grateful for my hon. Friend’s clarification, but my concern—I may well have read the Bill incorrectly—is that we are talking not just about majority or minority, but about where the majority or minority lies. At the moment, the majority has to be within every class of creditors, and there might be a disabusing minority within those instances. Under this legislation, an entire class of creditors could become a minority, and even though they all agree that they do not like the arrangement, for example, they will be forced to accept it. I think that that is a difference of approach. If we are giving that power to the courts, it is important for us and for the Government to be clear about the pattern that is likely to emerge, because in that respect the provision is different and new.
I think that the Secretary of State has answered my next question, but I will ask it again if I may. Will the clauses that are designed to be temporary measures sunset automatically without a subsequent affirmative statutory instrument proceeding in the House? Will they be subject to the negative procedure, or continue without an SI to cancel them? I would be grateful if the Minister could clarify that at some point, perhaps in his closing remarks if he has the time.
It is relevant to raise the issue of companies and sectors that may take time to recover, beyond the relevant period. I think that is addressed in Opposition amendments 3 to 6. What if the directors themselves cannot reach a clear judgment that fully escapes the risks of wrongful trading? What is the position of someone on a directorship in this situation who reaches a dissenting opinion to the majority of directors on the important issue of whether the organisation is able to continue trading? That is another issue of detail that the Minister may wish to address in Committee.
The impact assessment for the Bill does not appear to address the cost of debt from these changes, essentially assuming that changing what has historically been a situation that favoured senior debt to one that is a little bit looser between different classes of debt would have no impact on how much that debt might be priced at in the future. But it is my understanding that increasing risk on an instrument might cause an increase in the price on it. That may have been considered in the impact assessment and have been negligible, but it would be interesting to see what the Government have to say.
I am interested in what happens in the circumstances that arise under the chapter 11 equivalent proceedings when the Government are a debtor or a shareholder in a business. Do the Government have a voice that is different from any other creditor? The contribution of my hon. Friend the Member for Wimbledon (Stephen Hammond) was interesting in this regard, as he highlighted the part of the Bill where HMRC becomes a preferred creditor. Well, those of us who have had to deal with HMRC as a creditor in the past would not mark it down as one of the most amenable of creditors when it comes to its own interests, and that is putting it lightly. In fact, as we are seeing in this Parliament already, HMRC is acting, both in the Treasury and in general, somewhat as a bovver boy in British industry. It does not seem to like people who are self-employed and it certainly does not like people who have a loan charge. Now it seems to want to have priority in the debt structures of our companies. Where will its ambitions end? Where will this Government’s facilitation of the taxman’s ambitions end? As a Conservative, I would have hoped that they would have ended some time ago. Perhaps I can tempt my hon. Friend the Minister to comment on that.
Damian Collins
I am following my hon. Friend’s remarks closely. Given his opening remarks, might it not be better, if we believe in backing British business, for us to have some skin in the game? We might not get our money back every time, but overall we probably would.
Richard Fuller
After my hon. Friend’s comments about association football, of which I have absolutely no understanding at all, I will bow to his better judgment on this topic too, but generally I am not really in favour of the Government having skin in the commercial game. When they get active in the economy, they tend to blunder around and probably, with the best of intentions, make things worse. I am not saying that they should not have their role; certainly, right now, many people will want the Government to have a role. Many Members have rightly looked at the measures the Government have put in place to support business and praised them.
Of course, people need not just take our word for that. Ask people around the world which country’s Government have responded best to the economic consequences of the virus and they will say that the United Kingdom Government are No. 1, with Japan, America and Germany in the United Kingdom’s wake. That is a tremendous credit to Ministers, but I would not like to encourage them to make that participation any longer than it needs to be.
On the guidance for going concern judgments, the Department will have spoken with auditors about how they are approaching their going concern judgments this audit season. Does the Bill have any impact on those judgments? Does the Department already think that it might need to bring forward any other measures based on the independent judgments of those auditors?
I raise that because in the 2007 crisis, there was a feeling that the rating agencies had been captured by their corporate clients and were giving ratings that perhaps did not reflect the true underlying status of businesses. We are fortunate in this country already to have embarked on reforms of accounting and on the separation of accounting and other activities to limit that risk, but I just caution that we ought be aware of that in a year’s time when we look at those going concern judgments. We would not like those to come back on our accounting firms, which are doing the best they can.
In Committee, the Minister would be wise to give a few more details about the role of the monitor—my hon. Friend the Member for Huntingdon (Mr Djanogly) raised that issue—and what role the Department will have in monitoring the monitors. Is any change expected to that?
One other concern I have is that facilitating businesses to continue trading at a time when the economy as a whole may be recovering and uncertain has a hint about it of creating some form of zombie businesses, where people are compelled to provide supply, as is required under the Bill, but there is the increasing sense that those businesses are not going to make it. I may be expressing a concern based on widespread use of the insolvency practice, which may not come to fruition—let us hope that for many people it does not—but I wonder what the Government’s thoughts are about the risk of businesses existing in name but not actually being able to create a long-term future for themselves or their employees.
I mentioned the Opposition’s amendment 1, on the voice of employees on obtaining a moratorium. If that were tweaked, it would be an interesting issue for the Government to consider. I also mentioned in an intervention the powers of the small business commissioner. The Secretary of State was right to say, “Hold on a minute; that’s something that we will come back to,” particularly as we are going through this in one day. It is probably not something that we would want to put through so fast. Similarly the calls by the Leader of the Opposition—[Interruption.] I did it again. I am so sorry. It is so hard to forget that time.
Richard Fuller
Perhaps the current Leader of the Opposition would take offence at what the shadow Minister has said. I am not sure, although if we are ranking Leaders of the Opposition, I would say that as long as they are Labour, that is fine by me.
Notwithstanding the shadow Secretary of State’s position, he raised the issue of reform of corporate governance. It is an interesting topic, and the RSA Group did an interesting review of it last year, but again I would say to the Opposition that this is probably not the time for bringing that forward.
The protection of pension schemes is an issue that the Government ought to consider quite seriously. I have had personal experience of that, and I would not like those dependent on a pension fund to find themselves somehow further at risk as a result of these issues.
I started by mentioning the position 72 days ago and some of the consequences for businesses in the interim. I wanted to be absolutely clear that every single politician has been part of causing that, and, to the extent to which the Opposition continue to be supportive of the Government, as they have been in this debate, and the Government continue to be open with the Opposition, that is the spirit that the country would expect. For those businesses that have fallen because of the crisis or are likely to fail, I would like to say that, as a Member of Parliament, I am sorry. I am sorry for all that has happened to your businesses. I am sorry for the consequences. In the case of one particular constituent—who I will not name in full, but her first name is Peta—let me say that I have worked tirelessly to find ways in which Government programmes can support what you have done and will continue to do so. However, the best thing that we can do is to restore the British economy, get the Bill passed to ensure protection for the businesses that will fall on hard times and get the economy moving again.
Jim Shannon (Strangford) (DUP)
I thank right hon. and hon. Members for their speeches and contributions. I particularly thank the hon. Member for Heywood and Middleton (Chris Clarkson) for his maiden speech, which we all thoroughly enjoyed. We were unable to provide him with what people refer to as a doughnut, but we were here to support him. I wish him well and look forward to his future contributions.
I was pleased to hear the comments of the hon. Member for Folkestone and Hythe (Damian Collins) about where football teams will be in future, and I thank him for his knowledge of football and sport. It is critical for football teams to have the revenue that comes from crowds attending matches. I am a Leicester City supporter and have been for almost 50 years—nearly all my life, or the best part of it. A number of MPs in the last Parliament were Leicester City supporters. Some of them are no longer here, but others have taken their place, and we hope that the Leicester City supporters club in this House might grow again—it was six before—to perhaps four or thereabouts. I was pleased to hear the hon. Gentleman’s contribution and his thoughts are helpful, because the smaller clubs probably depend entirely on the revenue generated by the supporters on a Saturday afternoon or Friday night, or whenever it may be, so this is very important.
At this time of economic crisis, it is essential that we get the Bill right. I put on record my thanks to the Government for all they have done in their response. It is all very well to criticise, and easy to do so, but we should give accolades whenever they are due. It is the right to thank Government for their response and particularly the Chancellor for what he has done, because he has been excellent and has tried hard at a very difficult time.
I represent many little towns with high street shops, as well as my main town of Newtownards, which recently won the champion high street award for Northern Ireland. I am well aware that, despite the grant funding that has been allocated, alongside the tax deferral option, many of those businesses will be unable to continue trading. I want to give a clear picture of the covid 19 position for those high streets and businesses—without mentioning any names, by the way—some of which have literally hundreds of thousands of pounds of stock in their shops, yet with no outlet at all and their summer stock ready to go. They have been unable to do anything with it and their shops have been closed. It is a difficult pill to swallow. Six months ago they were running successful businesses, employing between five and 20 staff in their shops, so this has been calamitous.
My hon. Friend the Member for North Antrim (Ian Paisley) will know that I put forward a suggestion to our parliamentary group meeting that we could introduce some sort of revenue that could help those businesses. Lots of businesses are going online, and I can give the House an example of something that is happening in the Republic of Ireland. The Government there are giving up to €40,000 for each business to increase its online business or to start a new online business, and I am just wondering whether that is something we in this House should be doing as well. I know that we are talking about insolvency, and I understand that, but this is also about how we can help businesses to grow and ensuring that they can do that. The shops that I referred to are small and medium-sized businesses. There are successful family businesses but they are facing great uncertainty, so I again make the plea to be cautious, compassionate and understanding with them as they try to get through this difficult situation.
It was no surprise to read in the Library briefing that the coronavirus outbreak has led to a decline in business activity and revenue across many sectors, causing a large negative shock to the economy. The average forecast for quarterly GDP growth in the second quarter, April to June, was 16% based on Her Majesty’s Treasury’s survey of investment banks, economic research organisations and other institutions in May 2020. However, the estimates are highly uncertain, including on the extent to which the economy will bounce back. Companies and shopkeepers, and other Members, have referred to the rental issue, and I want to make the important point that every landlord needs to review their rental charges. Is it not better to have a small rent coming in than to have no rent at all, given the rateable obligations on the businesses? Is it not better to come to some sort of an agreement, rather than holding fast to what the rental figures would normally be?
The Office for National Statistics’ survey on the business impact of coronavirus reported that, between 20 April and 3 May 2020, 78% of businesses that responded were continuing to trade and 20% had temporarily closed or paused trading. I have had something come up in my constituency—I am sure that others have as well—relating to businesses that have been able to trade without having to borrow from the banks, be they in construction or in fishing and fishing vessels, or other businesses on the high street. They have conducted their business over periods of six, eight and 10 years—to give three examples without naming who they are—and they have never had to borrow until now, when hard times have hit them. It was difficult for them to go to the bank and borrow money because they did not have a credit status that the bank could look at and say, “You have always made your payments on time.” They had never had to make any payments. One of the predicaments that I have contacted the banks about is that they need to understand that those who have been able to conduct their businesses over periods of six, eight and 10 years have shown that they can well manage money without having to borrow it. I would have thought that those businesses’ credit status was therefore suitable and that there should be no difficulty whatsoever. Again, I just make the point.
I reiterate the point made by the shadow Minister in relation to the pension scheme deficits. I support his concerns about where that will end up, and I hope that the Minister will give us some clarity on that matter and maybe some reassurance. I have no doubt that he will do that. Northern Ireland has the highest rate of temporarily paused business trading, at 25%. That is the highest in all of the United Kingdom of Great Britain and Northern Ireland. I know this to be true from personal experience in my constituency, and I am sure that my hon. Friend the Member for North Antrim will have seen that among the businesses in his constituency as well. We must get the help and support needed to enable those businesses to reopen. London and the south-east have the lowest level, with some 16%.
The industries with the largest proportion of businesses that have temporarily paused trading are the accommodation and food services, at 78%, and the arts, entertainment and recreation sectors at 80%. A small number, just less than 1%, responded to say that they had permanently ceased trading in that period. Of the businesses that continue to trade, 61% reported that their turnover had decreased and 25% reported that turnover had fallen by more than 50%, although I am aware of some whose turnover has fallen by as much as 80% to 90%. Almost all businesses—99%—reported coronavirus as being the reason for the turnover reduction outside of the normal range, so it is very clear what the issue is.
The Government responded to the circumstances they were presented with and did their best, given the fear we all had of coronavirus and all the uncertainty. They were trying to get us to a position where we were able to lessen the number of deaths. What would have happened if we had not done anything? What would have happened if the Government had just said, “Plough on ahead”? We would be in the most calamitous, destructive time ever, and I think we have to thank and congratulate the Government for what they have done.
The largest fall in turnover was in accommodation and food services. The pharmaceutical and agrifood sectors are incredibly important for me in my constituency. Tourism and hospitality rank up there at the highest because the economic focus of the local council, Ards and North Down Borough Council, is tourism and hospitality. That is where the growth is. That has been the growth for the past three to four years and it will be the growth for the next three or four years as well, but we need to ensure that help is there for tourism and hospitality to get out the other side. Some of the hotels need that. We have some clarification on hotels in Northern Ireland, and that is good news. It gives the hotels a chance to try to book for the end of July onwards. We have to try to ensure that things are going in the right direction.
The Government have helped those who are self-employed and those who have furloughed staff. Under no estimation can we doubt that that has helped greatly to ensure that things go forward. These are unprecedented times, and while I must thank the Government again for all the steps they have taken and for going the extra mile, I have real concern about many businesses that need more. I am referencing not failing businesses, but businesses that were thriving, doing well, creating employment, creating opportunity and boosting the economy, and they can thrive again.
I was pleased on 20 March 2020 when the Business Secretary announced that the Government would introduce measures at the earliest opportunity, together with temporary covid-19-related measures intended to help companies avoid insolvency. Following that, I welcomed the Government’s announcement on 23 April 2020 of other measures to protect companies from the aggressive use of statutory demands and winding petitions, particularly by commercial landlords. I welcome those measures to help business and to step in where possible. I further welcome the mixture of permanent changes to insolvency law and temporary changes to insolvency law and corporate governance to ensure that we help at this time but do not tie our hands for the future.
The proposal in the helpful document is that the help for businesses would be from 1 March 2020 to 30 June 2020 and one month after the provision comes into force. Will the Minister confirm that, in the event of the pandemic’s impact on businesses continuing beyond the end of that period, the provision may be extended for up to six months using secondary legislation, and that the process may be repeated? It is important that we know that, because it is not just about the short-term measures; it is about the longer term to encourage businesses to be able to do more.
To conclude, on behalf of the people and businesses of Strangford, whom I am very privileged to represent, I thank the Government for their financial intervention, but I ask for more short-term support, more help with tax deferrals and greater help with staffing problems. We will get through this, but I believe that the business sector is the only way we can. We will reap the benefits from anything that we pour in at this time. Those entrepreneurs will end up repaying more than the help they receive with the income that will be allowed to be generated.
I support the Bill. I understand the reasoning behind it, and I support it fully. As my hon. Friend the Member for North Antrim said, we understand that the implications will be for Northern Ireland as well. It is good to have that in place, but I ask for further grants to be allocated for special circumstances. That, however, is a debate for another day. As others have said, tomorrow will be a better day, but we have to work towards that day.
Kevin Hollinrake (Thirsk and Malton) (Con)
It is a pleasure to speak after my hon. Friend the Member for Strangford (Jim Shannon); we have spoken in many debates on business issues before and he is a huge champion of business. It was also a pleasure to listen to the maiden speech of my new colleague, my hon. Friend the Member for Heywood and Middleton (Chris Clarkson). It is great to have another Conservative northern Member of Parliament to champion the cause of the northern powerhouse. He neglected to mention Yorkshire, and particularly north Yorkshire, in his list of areas in the north that will contribute to the recovery, but I will have a word later. It was a fantastic speech.
I draw the House’s attention—of course, in all these types of debates—to my entry in the Register of Members’ Financial Interests. I am still involved in business to this day. I am also the chair of the all-party group on fair business banking, which has talked about many of these issues over the last months and years. In my view, the CBILS and BBLS are a huge success, but there are problems, particularly with the CBILS, in terms of making sure that banks do allow money to go out the door based upon the business being a viable business on 1 March. There are still issues about banks assessing the ability of the business to pay the loan back over a period of time. In particular, there are sector-based issues—football clubs being one and house builders being another. Banks seem to be translating from a standard lending policy into a CBILS lending policy, which cannot be right. That was never the intention of the Government scheme.
On the Bill, I am a strong supporter of the measures being brought forward by my right hon. Friend the Secretary of State, particularly on the moratorium and the opportunity to restructure. That has been planned for some time to give businesses breathing space. Irrespective of the covid crisis, at any point in time, many businesses can be salvaged through this process. It has happened in the US for many years—it is known as chapter 11—and it is absolutely the right thing to do.
I will not talk in detail about the Bill, because many others have, but I will talk about some of the things that I think we need, as well as this legislation, that would make a significant difference. There are some outstanding issues that the Minister and the Department are aware of and they have consulted on some of them, particularly about moving from a self-regulation basis for insolvency practitioners to a single, truly independent regulator. There are some very important issues that we have seen over recent years in terms of conflicts of interest that will carry on despite the Bill. The moratorium and the opportunity to restructure will help to some extent, but the conflicts of interest will carry on. This is particularly because most insolvency practitioners who are appointed to carry out work on an insolvent business are appointed by the major creditor, which tends to be the bank. It is a panel appointment by the bank and clearly, people rarely bite the hand that feeds. So if most of the work that the insolvency practitioner—who is supposed to work independently of any individual creditor and in the best interests of all creditors—is getting is from the banks, they are more likely, in our experience, to work in the interests of the bank.
It is even worse than simply the facts of what happens in the insolvency. On many occasions, we are talking about large accountancy practices, such as KPMG, Deloitte, Ernst and Young, who are appointed by the banks prior to insolvency, for example, to carry out a supposedly independent business review—paid for by the business but instructed by the bank. They have been brought in to do an independent business review, which is supposed to give a fair representation of the business, and that accountancy practice then becomes the insolvency practitioner and can earn hundreds of thousands of pounds of fees in the insolvency, which is a clear conflict of interest.
This issue has been brought up for decades in this House. I found two debates in 1999 when this conflict of interest was mentioned. It is something we need to deal with. This has featured in many of the issues we have seen over the last decade or so, particularly around the last crisis, where we had tens of thousands of businesses that were put into administration by the banks—this is a matter of public record—particularly by RBS and Lloyds Banking Group. Tens of thousands of businesses were put into insolvency inappropriately. A fair percentage —around 20%—of those businesses were viable, but there is not one instance of an insolvency practitioner deciding to sue the bank and saying, “Your business has gone into receivership as a result of creditor misconduct.” In other words, the bank is forcing the business into administration. Never has there been a case in which an insolvency practitioner who is supposedly independent and working for all the creditors has said, “There is something wrong. We need to take the bank to task.” There has not been one instance. We have pushed for information, and we have received emails from accountancy practices saying, “We would never sue a bank—we would never litigate—because of the conflict of interest.” There is a huge conflict of interest, and huge sums lie at the heart of this.
We are talking about thousands of businesses in this situation. This is systemic for every bank and almost every insolvency practitioner, but I should like to discuss a particular case, because it reveals the nature of the issue. We are talking about tens of thousands of businesses, and we have to understand that there are tens of thousands of people—individuals—whose life’s work has been taken from them, along with hundreds of thousands of jobs. These are very serious issues.
The case I wish to raise is that of Arthur Holgate and Son. This is not a sub judice issue, and I have obtained consent from the business to discuss it. It is a tangible example of the problems that arise. It was a family-owned business that ran caravan parks and turned over about £2 million. It was a significant business that, like a lot of other businesses, sold a swap that put it in danger, which increased the cost of loan servicing a great deal. That became the matter of a redress scheme, because of the inappropriate sale of complex financial instruments to businesses that were not sophisticated.
When that came to light, with a route for redress, the business approached the scheme and was offered £300,000 in compensation, despite the fact that its losses totalled £1.4 million. Ultimately the business failed and went into administration. It was taken off the owners—it had been in the family for generations—but it was one of the few businesses that we have come across that had the financial wherewithal and tenacity to get this thing through to court. On the courtroom steps, compensation was settled at about £10 million by Barclays bank.
We need to look at the actions of the insolvency practitioner as well as the actions of Barclays bank. Despite the fact that the insolvency practitioner is supposed to work independently, it did not do so. It colluded in bringing about the failure of the business and as a result the distribution of assets from the business effectively went to them and to the banks. Deloitte was the insolvency practitioner. This is not an isolated case: Deloitte was fined this year for its administration of Comet—many Members will remember that—and it was given a £1 million fine for failing to manage a conflict of interest in that case. We need to deal with this, as we are not dealing with it in the legislation.
Deloitte was brought in to undertake an independent business review for the bank to see whether the business was viable and able to get through its financial difficulties. It charged the business £50,000 for that work, which was paid after the business was declared insolvent on a preferred creditor basis, which is against the law.
There are many concerns, but the most disgraceful part of this case was the correspondence between Barclays and Deloitte. Barclays effectively told Deloitte to ignore the directors, although they were running the business and knew it best. In fact, I can quote from one of the emails sent internally in Deloitte, which said: “Be careful of swallowing the Paul Holgate line”—Paul Holgate being one of the directors of the business—“that it’s somebody else’s fault”. He kept saying to them, “It’s not our fault that we are in this position. This is because the bank sold us a swap.” He was right, but Deloitte deliberately did not put that information in the business review and did not even mention the swap at that point in time or when the insolvency happened. Another email sent internally in Deloitte said, “We do not want to appear critical of the bank.” That is because of the conflict of interest, and it cannot be right.
We must put a Chinese wall between consultancy work that a bank requires an accountant to do and that very accountant then being able to do the insolvency work, because there is a clear conflict of interest. In this case, there were fees of £400,000 for Deloitte to carry out the insolvency work. Had it just done the £50,000 report and said, “This business is fine. It’s actually your fault because of the swap. If you settle that problem, the business will carry on trading fine,” Deloitte would have got £50,000, and that would have been it.
Jerome Mayhew
My hon. Friend talks very persuasively about this, and I have found myself nodding along to everything he has been saying for the last several minutes, but he keeps on referring to a conflict of interest, when surely what he is talking about is better named corruption.
Madam Deputy Speaker (Dame Eleanor Laing)
Order. Before the hon. Gentleman answers the intervention, although he has not spoken for an inordinately long time—indeed, other Members have spoken for much longer—he has spoken for well over 10 minutes, and I have to ask him to conclude pretty quickly, because it is in the interests of everyone that the Minister is able to answer the debate. Members have asked questions, and we must have time for that.
Kevin Hollinrake
Thank you, Madam Deputy Speaker. I will try to move on quickly.
A lot of this information is supplied by the then business owners. Deloitte actually perjured itself in court on many of these issues. All this arises because of the conflict of interest. Deloitte should have sued the bank, but that simply does not happen. This stuff happens because of the unholy alliance of vested financial interest, which we must eliminate.
The moratorium will help tremendously, but we also need to do what the Department has said it is keen to do: move away from self-regulation, which is how the sector is currently regulated. We need to recognise professional bodies and move to a single regulator—an ombudsman. We must put a Chinese wall between the accountancy practices that do the consultancy work and the insolvency practitioner.
We must also give individuals more power. In my view, we should allow the business to challenge the appointment of an insolvency practitioner and the approach of an insolvency practitioner, to effectively recognise creditor misconduct within the insolvency process, and let them take their complaint to a tribunal there and then. In Comet’s case, it was eight years down the line before the situation was resolved. It must happen there and then. We must have an ombudsman supported by a tribunal that can support businesses who feel that the insolvency has been carried out incorrectly.
There is one final thing I would like to say. I completely support the removal of the right of forfeiture from landlords and the suspension of winding-up orders. Some businesses, particularly very big businesses, are abusing that privilege—I would name Boots and WHSmith —by effectively saying to landlords, “We’re not even talking to you.” That is completely inappropriate. Ideally, those measures should come with the condition that a company cannot take dividends if it is benefiting from those measures. With that, I will happily conclude.
Bim Afolami (Hitchin and Harpenden) (Con)
I concur with what many Members have said about the maiden speech from my hon. Friend the Member for Heywood and Middleton (Chris Clarkson); it was an excellent maiden speech indeed, as I am sure everybody would agree. I also concur with what my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) said about landlords at the end of his speech. I spoke a couple of weeks ago to the Hitchin Property Trust, which owns a big part of Hitchin town centre, and the trust talked about the behaviour of some of its tenants; I will not name them, but they are very big corporates and are behaving in a similar way to that which he described. We have to look at that.
I do not know about you, Madam Deputy Speaker, but I was struck by the speech by my hon. Friend the Member for North East Bedfordshire (Richard Fuller). It was one of the best speeches I have heard in this House for long time. It is very important that none of us forget that every lost business is not just a line on the balance sheet or a statistic in a newspaper—it is a drop in income for a family; it is a mortgage that might be lost and a home that has to be sold; it is somebody’s life’s work up in smoke because of something that happened that was completely not their fault. I speak as somebody who has worked in business and in the City of London. My wife is currently running a family business, and I have seen the worry that she has gone through. Many of our friends, constituents and various other people—hundreds of them—have gone through similar worries over the past 72 days. When we consider the Bill and any of the other actions we are taking, we all need to bear in mind those people and those businesses.
The moratorium process in the Bill is a very good measure indeed. It provides a formal breathing space for a business to gather itself, take a pause and work out a restructuring plan that means that the business—and that means assets, jobs and people—can survive in a sustainable way going into the future. We should all commend that process.
There has been some discussion about certain creditors who will in effect be bound in. I cannot remember the name of the provision—somebody needs to rename it—but I think it is cross-class cram-down. It is awful. I like to think of it as the debt equivalent of the sort of drag-along right for a company that equity shareholders have. It feels a bit more like that to me and I much prefer that terminology. The point is that the scheme of arrangement that we can make under the moratorium process can be orderly and can lead to discussion, not just with the creditors and the company but with the court. Indeed, together we can work out a way forward. That is a very sensible provision.
I do have a couple of questions, though. First, bearing in mind how busy the court may be in the next 12, 18 or 24 months, have the Government thought of any provision for giving additional resources to the court and thought about how things are set up? Schemes of arrangement take a minimum of around three months to go through, so we do need to consider the practicalities of this happening en masse. If the process works as well as I hope it will, there will be a lot of moratoriums, so that is an important point for the Government to consider.
Connected with that, have the Government considered more of a mediation process contained within the moratorium? Does it always necessarily have to go to court? I may have missed that in the legislation. If it does not have to go to court, what is the process whereby we can have something similar to a scheme that does not go through a court, so as to help by not jamming up the High Court? As I say, there may be a lot of traffic going through.
There has been some discussion throughout this good and well-informed debate about the Government’s economic actions to try to save the economy from the public health measures that we have had to take. I completely agree that the Government have been foremost in the world—not just in Europe but in the world—in the actions that they have taken. We have heard criticism of the CBIL scheme. It is important to note that it is hard, practically, to get so much money out of the door in a way that observes a basic understanding that each business is a real business, with a real balance sheet, that can pay its debt. Yes, there have been problems, but let us not allow them to get in the way of our saying, “This is a really, really good economic response.” I know that the Minister, the BEIS team and the Treasury have worked tirelessly over the past few weeks and months, to ensure that that scheme works as smoothly as possible—and indeed, generally, it is working better and better all the time.
People may criticise the banks on this, but every situation is different, and we should bear it in mind that there are difficulties in pricing anything in the economy right now. Therefore, a bank, has to think about whether it might have big losses come Q4 this year or Q1 next year and has to think about whether money can be paid back and if it would have to take 20% of the loss, as is the case under the CBIL scheme. If people think that the Government—the British taxpayer—should pay 100% of every single loan that goes to every company, they should say so; but if they accept that that would not necessarily be the right thing for the taxpayer to do, and that the banks must therefore be involved, we must understand the worry that the banks have about big losses in the next 12 to 18 months. We do not want a banking crisis on top of what we already have.
I want to reflect on where we go from here—with the proviso that we are at least getting towards the conclusion of the health crisis. Obviously, I shall not put a timeframe on that, because none of us know, but if we are approaching that point, we shall be left with a hugely indebted corporate sector. If there is a hugely indebted corporate sector, notwithstanding the measures in the Bill—and indeed other measures—even the businesses that survive will find it very difficult to grow, carrying a huge amount of debt. We shall have to recapitalise large parts of the British corporate sector, and in this House in the weeks and months ahead we need to think about how we do that. The Bill could be one of the ways in which we start that process.
Lucy Powell (Manchester Central) (Lab/Co-op)
It is a pleasure to be on the Front Bench and at the Dispatch Box again as the shadow Business Minister, although I would have much preferred to make this speech safely and socially distanced in sunny Manchester—no offence.
I reiterate the thanks of my colleague, my right hon. Friend the Member for Doncaster North (Edward Miliband), to the Minister, the Secretary of State and their teams for all the engagement we have had on the Bill. Our objective, as the Opposition, is to be constructive, and to ensure that businesses get the support they need now and in the long term, to keep the number of insolvencies in the coming weeks and months as low as possible. As my right hon. Friend said, we support the overarching objectives of the Bill. However, we hope the Government can give us some reassurances in Committee. Many others today have voiced similar concerns.
I thank many colleagues from across the House for their speeches in this interesting debate. Obviously, the highlight was the maiden speech of the hon. Member for Heywood and Middleton (Chris Clarkson), who was a bit nervous about coming last out of his intake; but as a fellow Mancunian, I reiterate that the best was definitely saved till last.
Although we back the Bill today, we are clear that it should be the last resort for many businesses. There is much more for the Government to do now to support businesses so that, as my hon. Friend the Member for Bristol North West (Darren Jones) eloquently put it, the measures debated today are not necessary. Every previously viable business that needs to call on these insolvency changes because of our decision to shut down the economy for public health measures, is a business that has been failed. Ministers have recognised the huge scale of the situation, with the unprecedented support they have established to retain jobs and support businesses. That has been the right thing to do and we have supported it. However, as we enter the end of the lockdown phase, the challenges ahead are becoming clearer. More must now be done to rescue more businesses, and ensure that the recovery is as short and strong as possible. We must stop a second, and possibly a third or fourth wave of insolvencies arising from unmanageable debts and creditors. Any business that goes bust as a result of public health measures will lengthen and deepen the recession and leave long-lasting scars on unemployment levels and the wider economy.
Labour Members firmly believe that the cost of not doing all we can now to save businesses will be far higher than the cost of action today. Ultimately, the taxpayer will pay for the cost of failure, through lost tax revenues and higher unemployment over many years, not months. The Government need to renew their support package over the coming period, as it is now clear that the easing of lockdown will be longer and more complicated than was predicted at the start of this crisis. That is why we suggest that the temporary measures in the Bill should be extended today, rather than waiting until later.
Preventing insolvencies today, in and of itself, will not stave off insolvencies tomorrow, if the Government do not take a long view and ensure that businesses do not face a cliff edge. A second wave of support and sector-specific action is also required. Critically, if the recovery is based on unmanageable debt, it will be no recovery at all. In the immediate rescue phase, businesses and business organisations are asking for more discretionary grant funding to support the hardest hit businesses that have so far missed out, more flexibility with the furlough scheme, simplification of the CBIL scheme, and many other measures that have been mentioned today. Those include more clarity and joined up working on business critical issues such as quarantine measures, safety in the workplace, childcare, and shielded employees. The Government must not fall into complacency and think that their actions so far have been sufficient, because a second wave of support is urgently needed.
We have heard from a number of colleagues, notably my hon. Friends the Members for Aberavon (Stephen Kinnock) and for Cardiff South and Penarth (Stephen Doughty), and the hon. Members for Folkestone and Hythe (Damian Collins), and for Strangeford (Jim Shannon)—
Lucy Powell
Sorry. Strangford. It’s just that the Member of Parliament reminds me of that—no, I’m only joking.
The economic emergency we are in is affecting different sectors of the economy in different ways, some particularly and devastatingly harshly. This will be a sectoral recession, and the Government response must reflect that. We have raised with Ministers the serious issues facing our manufacturers, car manufacturing, steel makers, the aerospace and defence industry, aviation and tourism, the hospitality industry, and other areas such as football. The crisis is also affecting supply chains in those sectors, and we have already seen job losses at premier British companies such as Rolls-Royce and McLaren. There have been layoffs in the airline industry, despite the furlough scheme, and despite warnings from many industry bodies about the failure to provide adequate support and liquidity to business now. Will the Government step up with the more urgent response that is needed for those sectors, which so many Members have asked for today?
Project Birch has potential, but talking must quickly be followed by action. The promise of jam tomorrow will not pay the bills today. The feedback I get from businesses, especially some of our most important and largest employers, is about how slow the discussions with Government are, compared with the urgency of the cashflow problems. For example, our world-leading aerospace, aviation, tourism and travel sectors now face what could be a final blow from the confusion and mixed messaging about quarantine measures.
As the former Prime Minister Gordon Brown said, and as the hon. Member for Hitchin and Harpenden (Bim Afolami) has warned, the scale of the debt that companies are taking on to survive this crisis is huge. We will see a debt-laden recovery, with demand unlikely to return to normal quickly for many. Coupled with that debt, the recovery is likely to be weak, deepening its economic impact, and with insolvency spread over the months ahead.
Once companies have to start paying back loans, further insolvencies are likely to follow, with recovery choked by high levels of unemployment, and low levels of confidence. Are the Government exploring with business organisations and the finance sector ways to mitigate the month-13 problem of Government backed loans with a more long-term solution, as was suggested earlier?
Finally, we need to do more to increase and generate demand through a green recovery plan, as the hon. Member for North Antrim (Ian Paisley) described, and to address the youth unemployment crisis. The Government must seize the opportunity to bring forward pipeline projects to put British businesses at the forefront of the green and digital revolution.
Turning to some of the specific measures in the Bill, we support both the permanent changes to insolvency law and the temporary changes to insolvency law and corporate governance, but with some caveats. A balance must be struck between allowing businesses to survive through the crisis and not removing essential protections for creditors, pension funds and employees. The trade unions and others here today have raised some serious concerns about this, with good reason, and I will say more on that in Committee.
We believe that there must be no revision of the directors’ duty of care to their employees and suppliers. The Bill must ensure that SMEs and smaller suppliers are protected when larger companies go into administration. As the hon. Member for Dudley South (Mike Wood) and others have said, the temporary measures need to be extended today.
The Bill is a big missed opportunity to address corporate governance accountability, as the hon. Member for Huntingdon (Mr Djanogly) outlined. The collapse of Carillion was a national scandal. Yet again, corporate greed and very shaky indebted finances led to the taxpayer paying the price of directors’ failures. While those directors and shareholders reaped all the gains during the good times, the collapse of Thomas Cook more recently exposed these failings further, with the taxpayer once again footing the bill for failure. We had a conversation earlier about equity stakes, but the taxpayer in effect does have an equity stake in many businesses—but only in paying for the costs of failure, not in reaping any of the rewards of success. Ministers consulted on changes to insolvency law after these collapses, and some of these changes are in the Bill, but, inexplicably, other important ones are missing.
Over the coming months, as the recession takes hold and complex financial arrangements are pushed further towards breaking point by the new loans that these companies have, we are no doubt going to see the collapse of more household names and large corporates. Why have the Government not taken this opportunity, which we stand ready to support, to bring forward the long-awaited reforms on tackling bad corporate governance and protecting creditors, employees and, ultimately, the taxpayer? We also think it is a missed opportunity to have given the small business commissioner more powers and teeth, as the hon. Member for North East Bedfordshire (Richard Fuller) seemed to agree.
This is a speedy process for this Bill. It is a very large Bill, and we are expediting its passage through both Houses very speedily, so we are relying on Ministers to take on board some of the concerns raised today in the spirit of us working together. We will come back to some of these missed opportunities in Committee, but, to close, I urge the Minister to press his colleagues, including the Chancellor, to do more now to protect companies from insolvency. This Bill provides a small and important safety net and breathing space, but much more needs to be done and more quickly to prevent businesses from needing that breathing space in the first place. I hope that the Government will heed the warnings of business and provide further support so that the recession to come does not leave deep and lasting damage to our economy and employment.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
May I first welcome the hon. Member for Manchester Central (Lucy Powell) to her place? I thank her and the shadow Secretary of State, the right hon. Member for Doncaster North (Edward Miliband), for the engaging way in which they have spoken to officials. That has expedited the passage of this legislation, and our discussions—including with the SNP spokesman, the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) —have been particularly fruitful.
Unfortunately, I cannot respond to every question in the short time available to me now, but I hope that we will pick up some of these discussions during the next stages of the Bill. I thank all right hon. and hon. Members who have spoken for their contributions to the debate, not least, as has been mentioned, the excellent maiden speech of my hon. Friend the Member for Heywood and Middleton (Chris Clarkson). May I add my happy birthday regards to Win Page? My hon. Friend talked about the fact that the general election seemed a long time ago, and made the point about the Olde Boar’s Head—and a haircut for me as well—so congratulations.
As was mentioned by my hon. Friend the Member for Rugby (Mark Pawsey), the Institute of Directors and the Federation of Small Businesses have been incredibly supportive of the measures in this Bill. We welcome that support. It will help businesses that are struggling with the effects of the covid-19 crisis and lay the foundations for economic recovery in the UK. The insolvency reforms in the Bill will provide vital and urgent support for businesses to help them through the period of instability and to help them recover from the impact of covid-19 as the economy fully emerges from this crisis.
Madam Deputy Speaker (Dame Eleanor Laing)
I will take the hon. Gentleman’s point of order after the Minister has finished, unless it is immediately urgent to his speech.
Madam Deputy Speaker
I am guessing that it could well be timely, but the Minister has a very limited time in which to speak, and he should finish his speech first. Then I will take the hon. Gentleman’s point of order.
Paul Scully
Thank you, Madam Deputy Speaker.
The corporate restructuring package in particular will be of immediate help to companies in financial distress, which need further regulatory tools to help them recover. This Bill provides that. It will enable UK companies undergoing a rescue or restructuring process to continue trading, giving them breathing space that could help them avoid insolvency. I want to reassure right hon. and hon. Members that the temporary changes to insolvency law that are necessary to help businesses get through this unprecedented period will consider very carefully any case for further extensions to these powers, and they will be subject to the full scrutiny of the House.
The temporary prohibition on creditors filing statutory demands and winding-up petitions for covid-19-related debts will support the Government’s programme to help companies survive the covid-19 emergency. It will temporarily remove the threat of statutory demands and winding-up petitions being issued against otherwise viable companies by creditors not following the Government’s advice to show forbearance at this time.
Furthermore, temporarily removing the threat of personal liability for wrongful trading from directors who tried to keep their companies afloat throughout this emergency will encourage directors to continue to use their best efforts to trade during this uncertain time. The governance measures will provide temporary flexibilities on meetings and filings at a time when businesses are coping with reduced resources and restrictions due to social distancing measures.
Let me quickly address a couple of points made by the right hon. Member for Doncaster North. First, he is completely correct to say that, although there will be a temporary suspension of wrongful trading liability, directors will still have legal duties under wider company law. Those duties will remain in place, as will measures under insolvency law to penalise directors who abuse their position. I understand the suggestion of the right hon. Gentleman and the hon. Member for Inverness, Nairn, Badenoch and Strathspey that the temporary insolvency measures should be extended to 30 September 2020. At present, all the temporary insolvency measures will automatically sunset a month after Royal Assent. I can reassure them, though, that the Bill contains provisions enabling those temporary measures to be extended by statutory instrument where appropriate. The Government have every intention of making use of those provisions if the protections are needed beyond their present expiry date. It is a truly fluid situation and we do not want provisions to be in place for longer than is necessary.
The temporary measures all have significant impacts on the normal working of the business community, and the case for extending the measures will need to be considered against those impacts. Any extension should rightly be scrutinised by Parliament, but the Government will not hesitate to extend if that is required.
The right hon. Member for Doncaster North also raised a fair point on the need for employees to be protected in regard to restructuring plans. That point was also raised by my hon. Friend the Member for North East Bedfordshire (Richard Fuller). The aim of these measures is to restore the viability of struggling companies, thereby boosting the economy, saving jobs and protecting long-term investment. Yes, employees could find themselves as creditors in a restructuring plan, but in those circumstances, they will benefit from the same protections that are in place for other creditors and members. This will include the provision that they must be no worse off through the plan than they would otherwise be in the next most likely plan, and it will, of course, take into account their entitlement under employment legislation.
Importantly, a court can refuse to sanction a plan if it is not fair and it is equitable to do so. When making this assessment, one would expect the court to be mindful of the interests of employees in any pension schemes affected by that plan. If a restructuring plan is not agreed, it is worth remembering that the company might enter an insolvency proceeding, which would almost certainly produce a worse outcome overall for all involved. The company might stop trading altogether, which would put all employees at risk of losing their jobs. The Government are in the business of protecting jobs.
The right hon. Member for Doncaster North also raised concerns about CBILS and CLBILS, as well as the bounce-back loans. The Government have listened to helpful feedback on the business interruption loan schemes in recent weeks. That feedback has also shown that the smallest SMEs, some of which have perhaps not used finance in the past, are struggling to get their finance applications approved as quickly as they need, as we heard earlier. That is why the bounce-back loan schemes, which are fast for lenders to process and for businesses to access, have been launched.
On 27 April, the Chancellor announced the new bounce-back loan scheme, which will ensure that the smallest businesses can access up to £50,000 of loans in a matter of days. The scheme went live on 4 May. Businesses can complete a short, simple online application in up to a few hours. Under the scheme, there is no need for lenders to ask for complicated cash-flow forecasts or ask difficult questions about the future, which means those applications can be submitted and processed rapidly. Almost 700,000 have been have already been approved.
I thank my hon. Friends the Members for Wimbledon (Stephen Hammond), for Rugby and for Huntingdon (Mr Djanogly) and the hon. Members for Inverness, Nairn, Badenoch and Strathspey, for Bristol North West (Darren Jones), for Aberavon (Stephen Kinnock) and for North Antrim (Ian Paisley) for their contributions. I should say to my hon. Friend the Member for Wimbledon that the Charity Commission has confirmed that it will look favourably on charities that have been unable to hold their AGMs in the normal way, but asks that they write down their decisions to prove that they have done due diligence in holding a virtual AGM or delaying their AGM.
I applaud the passion of my hon. Friend the Member for North East Bedfordshire in standing up for businesses being able to come out of the recovery, as we motor through, changing gears. We will not go back immediately to how things were in January; we have to work with business and listen to business. I am grateful to all other Members who have spoken today.
These new measures complement the Government’s existing far-reaching economic support package for businesses and workers through this emergency. Today’s debate on these measures reinforces the importance of responding to the concerns of UK businesses and providing them with much-needed support during this difficult time. We are in the midst of a global emergency, in which otherwise economically viable businesses are facing the risk of insolvency because of covid-19. We must protect them as best we can. It is imperative that we act now to support our businesses and do what we can to ensure that they survive, preserve jobs and support future growth. Clearly, our first priority is to protect lives, but restoring livelihoods, protecting businesses and getting the economy motoring is also essential. That is why it is imperative that we act now. The measures in the Bill will provide businesses with the flexibility and breathing space they need to continue trading during this difficult time and support the nation’s economic recovery.
Question put and agreed to.
Bill accordingly read a Second time.
Chris Bryant
On a point of order, Madam Deputy Speaker. I apologise to the Minister; it was not my intention to be rude to him by interrupting him earlier.
We have gone past seven o’clock, as you will have noticed, Madam Deputy Speaker, which means that the motion in the name of the Leader of the House that pertains to virtual participation in proceedings during the pandemic will—I think this is the Government’s intention—be a “nod or nothing” measure. There can be no debate, and if it is opposed, it therefore falls. I have tabled an amendment and I have no intention of withdrawing it. I would want to contest the motion, and I understand that the amendment would be selected by the Speaker if it were to proceed. It is my understanding that it cannot now proceed. Nobody needs to object; it simply cannot now proceed because it is opposed business. Is that your understanding as well?
Madam Deputy Speaker (Dame Eleanor Laing)
I am grateful to the hon. Gentleman for his point of order. He will understand that I did not want to hear it during the Minister’s winding-up speech because it would have taken time away from the Minister, which would not have been fair, as many people had asked questions that required answers from the Minister.
The hon. Gentleman refers to motion No. 4, on virtual participation in proceedings during the pandemic. He has just publicly made me aware that he intends to press his amendment and will not withdraw it. That means that the motion is effectively contested. As it is a contested motion, I will not be able to put the main Question, so the simple answer to the hon. Gentleman’s point is that he is correct in his analysis of the situation. In case other people are confused, I will make this point again when we come to motion No. 4.
Karen Bradley (Staffordshire Moorlands) (Con)
On a point of order, Madam Deputy Speaker. I just want to be clear, for the avoidance of doubt, that although I tabled an amendment to the same motion that was also selected, I have withdrawn that amendment and will not be pressing it.
Madam Deputy Speaker
I am grateful to the right hon. Lady for informing the House of that matter. As Mr Speaker had selected three amendments, having one amendment that continues to be contested settles the matter.
Valerie Vaz (Walsall South) (Lab)
On a point of order, Madam Deputy Speaker. The Opposition do not want to withdraw our amendment.
Madam Deputy Speaker
I am grateful to the right hon. Lady. Arithmetic is my strong point: I had three amendments. One has been withdrawn. That means that I have two amendments left. It does not change the constitutional position.
Mr Peter Bone (Wellingborough) (Con)
On a point of order, Madam Deputy Speaker. I was here at 7 o’clock and it did not appear that the Government moved the business of the House motion that was due to be moved at 7 o’clock. It is probably a technical matter, but it now seems to me that if there were to be a Division on the current Bill, it would be a deferred Division. Is that correct?
Madam Deputy Speaker
No, it is not correct. There was no need for the 7 o’clock motion to be moved, because of the terms of the business of the House motion relating to today.
Kevin Brennan (Cardiff West) (Lab)
On a point of order, Madam Deputy Speaker. Yesterday, I intervened on the Leader of the House to ask about the possibility of introducing proxy voting to enable people to vote remotely during the current way in which Parliament has been organised, and the Leader of the House said that that matter had been referred to the Procedure Committee, chaired by the right hon. Member for Staffordshire Moorlands (Karen Bradley), who is in her place. Today at Prime Minister’s Question Time, the Prime Minister said that the Government were proposing to introduce proxy voting. Have you had any notification from the Government that they intend to table a motion tomorrow introducing proxy voting for Members other than those who are on maternity leave, and to provide time for that matter to be debated and voted on?
Madam Deputy Speaker
Now, I thought that we were doing very well, because all the other points of order that I have just taken were real points of order, and it is such a pleasure to have real points of order. I appreciate that the hon. Gentleman raises an interesting point, but it is not a point of order for the Chair. I have a feeling that the hon. Gentleman will be able to ask those questions tomorrow.
Before we move on to the next item of business, which is the Committee stage of the Bill, in order to allow the safe exit of Members participating in this item of business and the safe arrival of those participating in the next item of business, I am now suspending the House for five minutes. I would be grateful if hon. Members would leave the Chamber.
Valerie Vaz
On a point of order, Madam Deputy Speaker. May I clarify my earlier point of order on motion 4? I understand that there have been further discussions with the Government and the Opposition. I rise to withdraw our amendment, because I understand that a new motion will be put down tomorrow on proxy voting.
Madam Deputy Speaker (Dame Eleanor Laing)
I am grateful for the right hon. Lady’s point of order and for her clarification. I will do my arithmetic again. Having started with three amendments, I now have two withdrawn, so there is one amendment left. I am grateful to the right hon. Lady.
Corporate Insolvency and Governance Bill
Wednesday 3rd June 2020
(3 years, 10 months ago)
Commons ChamberRead Full debate Corporate Insolvency and Governance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 3 June 2020 - (3 Jun 2020)
The Chairman of Ways and Means (Dame Eleanor Laing)
Before I ask the Clerk to read the title of the Bill, I should explain that, in these exceptional circumstances, although the Chair of the Committee would normally sit in the Clerk’s chair during Committee stage, in order to comply with social distancing requirements I will remain in the Speaker’s Chair, although I will be carrying out the role not of Deputy Speaker but of Chairman of the Committee.
Clause 1
Moratoriums in Great Britain
Lucy Powell (Manchester Central) (Lab/Co-op)
I beg to move, amendment 1, page 3, line 24, after “debts,”, insert—
“(da) a statement on behalf of any trade union made on behalf of employees affected by the proposed rescue of the company as a going concern,”
This amendment would include trade union views among the relevant documents which must accompany an application by the directors of the company to the court for a moratorium.
The Chairman of Ways and Means (Dame Eleanor Laing)
With this it will be convenient to consider:
Amendment 2, page 4, line 38, at end insert—
“(2A) For small businesses, in this Chapter, the initial period, in relation to a moratorium, means the period of 30 business days beginning with the business day after the day on which the moratorium comes into force.”
This amendment would extend the moratorium for small business from 20 days to 30 days for businesses facing insolvency.
Clause stand part.
Clauses 2 to 9 stand part.
Amendment 3, in clause 10, page 63, line 21, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period since 1 March 2020 during which a court in Great Britain is to assume that a person is not responsible for any worsening of the financial position of the company or its creditors that has occurred, following the onset of the coronavirus pandemic.
Clause 10 stand part.
Amendment 4, in clause 11, page 64, line 46, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period since 1 March 2020 during which a court in Northern Ireland is to assume that a person is not responsible for any worsening of the financial position of the company or its creditors that has occurred, following the onset of the coronavirus pandemic.
Clauses 11 to 12 stand part.
Amendment 5, in clause 13, page 69, line 12, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period since 1 March 2020 during which section 233B of the Insolvency Act 1986 (to be inserted by clause 12 of this Bill) does not apply in Great Britain in relation to a contract for the supply of goods or services to a company where the company becomes subject to a relevant insolvency procedure, and the supplier is a small entity at the time the company becomes subject to the procedure.
Clauses 13 to 16 stand part.
Amendment 6, in clause 17, page 76, line 1, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period since 1 March 2020 during which Article 197B of the Insolvency (Northern Ireland) Order 1989 (to be inserted by clause 16 of this Bill) does not apply in Northern Ireland in relation to a contract for the supply of goods or services to a company where the company becomes subject to a relevant insolvency procedure, and the supplier is a small entity at the time the company becomes subject to the procedure.
Clauses 17 to 22 stand part.
Amendment 13, in clause 23, page 79, line 20, leave out “section 18” and insert
“sections (Moratoriums in Great Britain: time-limited effect and renewal), (Moratoriums in Northern Ireland: time-limited effect and renewal), (Arrangements and reconstructions for companies in financial difficulty: time-limited effect and renewal), (Protection of supplies of goods and services: time-limited effect and renewal) and 18”
This amendment allows the Secretary of State to make consequential, incidental or supplementary or transitional provision or savings (including modifying the effect of this Act or any other enactment, making different provision for different purposes and binding the Crown) in connection with NC6, NC7, NC8 and NC9.
Clauses 23 to 47 stand part.
New clause 1—Ring-fence for unsecured creditors—
“(1) Section 176A of the Insolvency Act 1986 is amended as follows.
(2) After subsection (2), insert—
‘(2A) The prescribed part of the company’s net property available for the satisfaction of unsecured debts shall not be less than 30 per cent.’”
This new clause inserts into section 176A of the Insolvency Act 1986 a requirement that at least 30 per-cent of the proceeds from the sale of assets of businesses (after the deduction of the amounts owed to preferential creditors and the fees/expenses of the insolvency practitioners) in administration and liquidation shall be ring-fenced for payment to unsecured creditors.
New clause 3—Corporate governance: reforms—
“(1) Before 31 December 2020, the Secretary of State must—
(a) carry out a review of corporate governance;
(b) set out the conclusions of the review in a report;
(c) publish the report; and
(d) arrange for copies of the report to be laid before both Houses of Parliament.
(2) The report under subsection (1) must in particular set out the Government’s proposals for—
(a) ensuring greater accountability of directors in group companies which sell failing subsidiaries;
(b) legislating to enhance powers for insolvency practitioners in relation to value extraction schemes (removal of value from a firm at the expense of its creditors when in financial distress);
(c) further raising standards by ensuring that directors of a company publish regular explanations to their shareholders as to what extent the company can afford to pay dividends alongside its financial commitments such as capital investments, workers’ rewards and pension schemes.”
This new clause paves the way for the introduction of measures proposed in the 2018 consultation on Insolvency and Corporate Governance.
New clause 4— Preference for pension scheme deficits in case of insolvency—
“(1) The Secretary of State, after consulting the Pensions Regulator, may make regulations amending this Act to ensure that contributions owed to pension schemes by a company are treated in the categories of preferential debts under the Insolvency Act 1986 as a priority secured creditor.
(2) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.”
The intention of this new clause is to make pension scheme deficits a ‘priority creditor’ in the event of insolvency and therefore due to be paid before unsecured creditors.
New clause 5—Trade union representation in restructuring process—
“(1) Before 31 December 2020, the Secretary of State must—
(a) carry out a review of the role of trade unions in company restructuring arrangements;
(b) set out the conclusions of the review in a report;
(c) publish the report; and
(d) arrange for copies of the report to be laid before both Houses of Parliament.
(2) The report under subsection (1) must in particular set out the Government’s proposals for ensuring that trade unions representing employees affected by any proposed restructuring are—
(a) provided with all the information made available to the court,
(b) fully consulted by the directors of a company before any application for restructuring is made, and
(c) given the opportunity to contribute to decisions made by the court affecting their members.”
The intention of this new clause is to require mandatory discussion with trade union representatives once a company has entered the restructuring process.
New clause 6—Moratoriums in Great Britain: time-limited effect and renewal—
“(1) Part A1 of the Insolvency Act 1986 (inserted by section 1 of this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).
(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part A1 of the Insolvency Act 1986 should continue to have effect for a specified further period of no more than one year.
(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.
(4) The Secretary of State must keep under review the operation of Part 1A of the Insolvency Act 1986 during the period for which it has effect.
(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”
This new clause would terminate the free-standing moratorium provision for Great Britain on 30 September 2020, subject to temporary renewal for up to one year.
New clause 7—Moratoriums in Northern Ireland: time-limited effect and renewal—
“(1) Part 1A of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (inserted by section 4 of this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).
(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part 1A of the Insolvency (Northern Ireland) Order 1989 should continue to have effect for a specified further period of no more than one year.
(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.
(4) The Secretary of State must keep under review the operation of Part 1A of the Insolvency (Northern Ireland) Order 1989 during the period for which it has effect.
(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament and the Northern Ireland Assembly no later than 15 September 2020.”
This new clause would terminate the free-standing moratorium provision fin Northern Ireland on 30 September 2020, subject to temporary renewal for up to one year.
New clause 8—Arrangements and reconstructions for companies in financial difficulty: time-limited effect and renewal—
“(1) Part 26A of the Companies Act 2006 (inserted by section 7 of this Act and Schedule 9 to this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).
(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part 26A of the Companies Act 2006 should continue to have effect for a specified further period of no more than one year.
(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.
(4) The Secretary of State must keep under review the operation of Part 26A of the Companies Act 2006 during the period for which it has effect.
(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”
This new clause would terminate the new restructuring plan provisions on 30 September 2020, subject to temporary renewal for up to one year.
New clause 9—Protection of supplies of goods and services: time-limited effect and renewal—
“(1) Sections 233B and 233C of the Insolvency Act 1986 (inserted by section 12 of this Act) cease to have effect on 30 September 2020, subject to the condition in subsection (2).
(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that sections 233B and 233C of the Insolvency Act 1986 should continue to have effect for a specified further period of no more than one year.
(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.
(4) The Secretary of State must keep under review the operation of sections 233B and 233C of the Insolvency Act 1986 during the period for which they have effect.
(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”
This new clause would terminate the widening of Ipso facto (termination) clauses in supply contracts on 30 September 2020, subject to temporary renewal for up to one year.
That schedule 1 be the First schedule to the Bill.
That schedule 2 be the Second schedule to the Bill.
That schedule 3 be the Third schedule to the Bill.
Amendment 7, in schedule 4, page 122, line 38, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period after this Act comes into force during which the Secretary of State may by regulations made by statutory instrument provide for any temporary modifications to primary legislation in relation to moratoriums in Great Britain made by Part 2 of Schedule 4 to cease to have effect.
Government amendment 15.
That schedule 4 be the Fourth schedule to the Bill.
That schedule 5 be the Fifth schedule to the Bill.
That schedule 6 be the Sixth schedule to the Bill.
Government amendment 16.
That schedule 7 be the Seventh schedule to the Bill.
Amendment 8, in schedule 8, page 165, line 28, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period after this Act comes into force during which the Department for the Economy in Northern Ireland may by regulations provide for any temporary modifications to primary legislation, or temporary Rules under Article 359 of the Insolvency (Northern Ireland) Order 1989, in relation to moratoriums in Northern Ireland in made by provision made by Part 2 of Schedule 8 to cease to have effect before the end of the relevant period.
Government amendment 17.
That schedule 8 be the Eighth schedule to the Bill.
Government amendments 18 to 25.
That schedule 9 be the Ninth schedule to the Bill.
Amendment 9, in schedule 10, page 203, line 15, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on or after 27 April 2020 on the statutory grounds specified in section 123(1)(a) or section 124 of the Insolvency Act 1986 (that a written demand has not been paid within 3 weeks) where the demand was served during that period.
Amendment 10, page 209, line 36, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on the grounds specified in Part 2 of Schedule 10 to this Bill (except where coronavirus had not had an effect on the company).
That schedule 10 be the Tenth schedule to the Bill.
Amendment 11, in schedule 11, page 211, line 2, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on or after 27 April 2020 on the grounds specified in sub-paragraph (a) of Article 103(1)(a) or Article 104 of the Insolvency (Northern Ireland) Order 1989 Order (that a written demand has not been paid within 3 weeks) where the demand was served during that period.
Amendment 12, page 216, line 25, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company in Northern Ireland may not be presented on the grounds specified in Part 2 of Schedule 11 to this Bill (except where coronavirus had not had an effect on the company).
That schedule 11 be the Eleventh schedule to the Bill.
That schedule 12 be the Twelfth schedule to the Bill.
That schedule 13 be the Thirteenth schedule to the Bill.
That schedule 14 be the Fourteenth schedule to the Bill.
Amendment 14, Title, line 3, after “make” insert “temporary”
This consequential amendment clarifies the temporary nature of the Bill’s provisions.
Lucy Powell
As my right hon. Friend the Member for Doncaster North (Edward Miliband) and I have said, we support the principle of the Bill and urge the Government to do more to support businesses, so that they can remain solvent and do not need to use these provisions. I hope the Minister will take the amendments in the constructive way they are meant. I will speak to each of them in turn and set out why we are seeking reassurances or think that the Government should consider changes to the Bill as it progresses. This has been a very truncated process, so we are relying on Ministers’ good will to take on board not just the comments I am about to make but those made on Second Reading, some of which were excellent suggestions.
I will take the self-explanatory amendments first. Amendments 3 to 12 inclusive would extend the time limits of the covid-19-specific provisions in the Bill. We welcome the retrospective nature of the provisions, but as we have discussed with the Minister, we suggest that the Government amend the Bill to extend the time limits for a number of the provisions, as they are insufficient given the prolonged nature of the crisis. Specifically, the suspension of the wrongful trading liability and statutory demands and winding-up petition measures should be extended to the same date as when the AGM and company account filing measures are valid, which is until 30 September.
Clearly, there was a sense from Government when the Bill was being drafted that on 30 June, most things would be back to business as usual. It is now clear that many sectors will not even be partially open for business again by that deadline—I am thinking particularly of hospitality, travel, tourism and the arts and their associated supply chains. They will not even have begun trading by the end of this month, let alone be getting back to any kind of solvency.
Jim Shannon (Strangford) (DUP)
I agree wholeheartedly with what the hon. Lady is saying. In Northern Ireland the start date for the hospitality sector, including hotels, is 20 July, so nothing will even be in place until that time. I am a wee bit disappointed that the Minister has not acknowledged that we should have a six-month extension, maybe even to the end of the year.
Lucy Powell
The hon. Member makes a good point. Businesses that are struggling to keep their heads above water need certainty, and they need to know that the lifeline measures in the Bill will not be pulled from under their feet before they even reach needing them.
The point of the suspension of the wrongful trading provisions is that lots of businesses are effectively trading technically insolvent already through no fault of their own. Just as we have seen Ministers rightly extend the furlough scheme, support for the self-employed and other measures, they should get ahead of this now. Rather than having to spend time on a statutory instrument in only two or three weeks’ time, Ministers could and should take the opportunity to get this done today by agreeing to our amendment.
Amendment 2 would extend the moratorium for small businesses from 20 days to 30 days for businesses facing insolvency. The Federation of Small Businesses has called on Government to extend the moratorium period for small businesses because it does not believe that the 20-day period in the Bill is sufficient. We support that call and ask Ministers to agree to that change.
New clause 2 has not been selected, and we will have a proper look at this in the other place, but we think that the powers of the Small Business Commissioner should be strengthened, as we discussed on Second Reading.
We have long argued for some of the permanent measures in the Bill, particularly in the wake of the Carillion collapse. However, we have some concerns about what has been left out, as I said on Second Reading. There could be unintended consequences in the restructuring proposals that are being put in place that could disadvantage small businesses, employees or other unsecured creditors, such as pension funds. The Minister and I have discussed the issue in private, and it was also raised by a number of Government Members earlier. Given the crisis and the numbers of businesses already struggling, we appreciate the haste in bringing forward the changes, but we are concerned that Members and outside bodies have not had a lot of time to scrutinise the Bill and its implications, so we think the Government could consider having a period for reflection and review.
We have included as amendments a number of omissions from the 2018 consultation. The collapse of Carillion and the consequences for workers, supply-chain businesses and the public were a national scandal and an abject failure of British corporate governance policies. There have been huge repercussions for taxpayers, with unfulfilled contracts, unfinished buildings and thousands of apprentices laid off—the taxpayer had to foot the bill for those failures of corporate governance. There is, rightfully, public anger at the failure to hold people to account for such things. As ever, it seems that in such instances the profits are taken by the private sector, but the public sector foots the bill when the risks have been taken by directors over whom they have no control. Given the economic crisis that we face and the likely recession, it is clear that in the next few months and years we will see more big corporate collapses and failures, so it really is remiss of the Government not to strengthen the corporate governance measures, as they said they would do in 2018. I wish to make it clear, especially because Members raised this earlier, that the measures in our amendment are lifted entirely from the Government’s own recommendations.
Alongside key omissions from the Bill, we have heard from academics, trade unions and other organisations about some of the sweeping powers in the legislation and the fact that there could be considerable scope for the misuse of some measures to disadvantage particular groups. The next set of amendments would seek to safeguard funds for unsecured creditors, protect pension schemes, and protect employees by giving trade unions a voice in any restructuring plans. I urge the Minister to have conversations with the trade unions and to look to add our provision—or a provision like it, as Members from both sides were calling for earlier—to the Bill as it progresses to the other place.
We have concerns about how the restructuring plan will hit employees: many more could be pushed to or around the national minimum wage and lose their rights and their wages, as we are currently seeing with what British Airways is doing. Pension scheme deficits will be left unaddressed and more workers could end up losing out from their pension schemes. If this was not an emergency Bill, we would have had a lot more time to probe Ministers on these issues in a full Committee and to discuss what could be done to strengthen the protections in the Bill.
New clause 1 would insert into section 176A of the Insolvency Act 1986 a requirement that at least 30% of the proceeds from the sale of assets of businesses in administration or liquidation should be ring-fenced for payments to unsecured creditors, who often end up losing out to larger creditors, such as banks. The new clause explores a way for unsecured creditors to be guaranteed some assets so that they do not miss out. The legislation assumes that all creditors are identical and take a hit, but we know that that is not borne out in reality. There is a case for protecting the debts of SMEs and other unsecured creditors up to a specified amount, and that should not be reduced. What assurances can the Minister give that unsecured creditors will not lose out as a result of the Bill—although I know that that is what it is designed to try to achieve—and what mitigation is in place to protect unsecured creditors, who are often in the SME sector?
The intention of new clause 4 is to make pension scheme deficits a priority creditor in the event of insolvency and therefore due to be paid before unsecured creditors. The new clause would require the Government to make pension scheme deficits a priority, meaning that they would be the first in the queue in the event of insolvency and paid before other creditors. That could make employees’ votes count and offer them some protection. It is worth remembering that pension schemes are unsecured creditors in normal circumstances. If the deficit is not addressed by companies, employees face an erosion of their pension rights and their pension value goes down. Our amendment would help them to become a separate class in their own right and not to be subsumed into the amorphous mass of unsecured creditors. Members would be able to vote on any restructuring plan. That way, there would be a clear message to past and present employees. Given the nature of this debate and the number of colleagues from both sides of the House who have raised this issue, I hope that Ministers will look at the matter.
The intention of new clause 5 is to require mandatory discussion with trade union representatives once a company has entered the restructuring process. I understand that US evidence shows that restructuring plans often hit employees hardest, and many of the provisions in the Bill are based on US-European models. Wages can be reduced and employment terms changed. Many employees end up on zero-hours contracts or, as we have seen recently with BA, are sacked and then offered worse terms and conditions when they are re-employed. Pension rights are also reduced, and that could happen in the UK. I am sure that Ministers do not wish that to be an unintended consequence of the legislation, so we hope that the Minister will look at our idea, or a similar idea, and see if it can be introduced in the other place. I hope he can provide reassurance on that, not least because my boss, the shadow Secretary of State, is particularly agitated—and rightly so—about this issue.
I hope that the Minister will consider the amendments in the constructive way in which they are tabled. A number of Government amendments have been tabled, and they seem reasonable. We have not had a lot of time to study them, but I am grateful to the Minister for arranging a briefing with his officials. I look forward to his providing us with a bit more detail and assurance as the Bill proceeds.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
This Bill has been produced with ministerial colleagues, the Bill team, which has worked through weekends, representatives of businesses, consumers, workers, shareholders, investors, insolvency experts and, indeed, after really constructive conversations with Opposition Members from all parts of the House. For all those people, I want to put on the record thanks for the constructive way in which the measure has been introduced.
We have had a good debate and there are a number of issues that we need to explore. I am more than happy to cover as much ground as I can. An amendment on prompt payment was cited on Second Reading, but it was not selected. However, as the Secretary of State has said, we made a manifesto commitment to consult on extending a range of powers to the small business commissioner and to clamp down on late payment. We still plan to consult on doing so to allow the small business commissioner to advocate for and support small businesses. We are keen to capture as many views as possible to ensure that the policy response is the right one. In the light of businesses furloughing staff and of other priorities, we do not believe that consulting now is the right thing to do, but the Government remain committed to the prompt payment code.
Amendment 1 seeks to add a statement from a trade union on behalf of employees to the document that must be filed at court at the commencement of the moratorium. It is important to note that a successful rescue would be of direct benefit to employees, as it would result in jobs being saved. Requiring a statement from the trade union on their behalf alongside statements from the insolvency practitioner and directors would add little to the process. In fact, it might risk publicising the company’s financial problems before the protection from creditor action that a moratorium would bring, making rescue less likely.
Employees benefit from considerable protection in the moratorium, which will not be a bomb shelter for bad employers. As I have set out previously, wages and any redundancy payments relating to a period before as well as during the moratorium should be paid by the company. If it does not pay such amounts the monitor must bring the moratorium to an end. While legal process cannot be begun or continued against the company while it is in a moratorium without the leave of the court, an exception is made for employment tribunal claims and other proceedings between an employer and the worker. For those reasons I have set out, I am unable to accept this amendment and I hope it will not be pressed, but I do value the regular meetings I have with TUC members, a number of whom I will be speaking to tomorrow as part of my regular engagement. I value their input at every stage on employment rights and other issues that fall within my brief.
Kevin Hollinrake
Matters are progressing quickly and it is important to bring forward these measures now, but they do not directly tackle the issues relating to conflict of interest. The Department’s proposal to look for a single regulator could well do that. Will the Minister be prepared to meet me to discuss those measures to see when they might be brought forward in future legislation?
Paul Scully
I welcome my hon. Friend’s intervention. He has spoken at length on this and he has been a champion for that change, and I would be happy to meet him to discuss that further.
Amendments 18, 19, 21, 22, 23 and 25 deal with the Cape Town convention, which is an international treaty that seeks to lower the cost of finance for various high-value, mobile assets, including, importantly, aircraft. I know the sector has been particularly impacted by the unique situation posed by the coronavirus pandemic. The insolvency provisions in the Cape Town convention and the aircraft protocol, which we ratified in 2015, are some of the key provisions that give rise to low financing costs in the airline industry. They provide aircraft creditors with greater certainty that they will be able to take steps to enforce their security if an airline debtor defaults on payments or enters into insolvency. The effect of the provisions in the Bill that the Government are amending would have been to enhance the existing protections afforded to Cape Town creditors by extending those protections beyond what the convention and the aircraft protocol require. That was done to create even greater certainty for creditors and further reduce lending costs within the industry. However, in doing so, the new provisions would also have constrained the ability of a financially distressed airline to restructure without creditor consent, either using existing tools under the Companies Act 2006 or the new restructuring plan procedure that is being introduced by the Bill.
Since the publication of the Bill, we have listened closely to the views of many, including interested stakeholders in the airline sector and the restructuring profession. Both have expressed that these provisions could create a significant hurdle to successfully restructuring a struggling airline. The Government are absolutely aware of the very significant impact that this emergency is having on the airline sector. I am also clear that the overriding aim of the Bill is to make it as easy as possible for affected companies to get the breathing space that they need to weather the impact of covid-19, which clearly applies to the airline sector. Given the extraordinary challenge of the circumstances faced by the sector, the Government have decided to remove the relevant provisions from the Bill, which will retain the ability for an airline to use a scheme of arrangement and a restructuring plan to affect Cape Town creditors’ registered interests without the consent of every individual creditor, provided that the other safeguards of those procedures are satisfied. It is complex and we know that we need to work with the airlines on this and give struggling airlines the ability to successfully restructure.
I turn to amendment 15, which deals with the temporary changes to the moratorium that we are introducing in the Bill specifically for England, Wales and Scotland. I will shortly speak to a corresponding amendment for Northern Ireland. Members of this esteemed House will be aware that one of the things that the Bill is for is to create the moratorium, which is vital to give troubled companies the breathing space, but they face significant risks when seeking to restructure, and creditors can derail rescue plans and cause otherwise viable companies to fail unnecessarily. This adversely affects the interests of the company, its creditors and its employees, as well as the wider economy. Recognising the pressing need for companies to be able to access a moratorium in the face of the immediate impact of this emergency, in addition to the permanent measures, we have also introduced temporary measures to ensure that it is as easy as possible for businesses to access a moratorium in the short term. This is done in schedule 4 to the Bill.
While the schedule 4 temporary measures are in place, it is important that these can be applied consistently to each type of entity that can obtain a moratorium. If eligibility for the temporary measures changed depending on what sort of entity was seeking the moratorium, that would patently not be the case. As drafted, there are two entities for which schedule 4 would not otherwise apply: limited liability partnerships and co-operative and community benefit societies. This amendment would add a small fifth section to schedule 4, consisting of two paragraphs to make limited liability partnerships and co-operative and community benefit societies eligible for the temporary moratorium measures. That ensures that these entities can also be brought within the scope of the schedule and make best use of the breathing space that the measures offer. It ensures that both co-operative and community benefit societies and limited liability partnerships in England, Scotland and Wales will benefit from the temporary measures that we have set out in the schedule, as well as from the wider provisions on moratoriums. There is a corresponding amendment for Northern Ireland. These time-limited and temporary changes will make sure that we best address specific issues for companies during the covid-19 emergency and ensure that the relevant entities are all equally eligible for our temporary measures on moratoriums.
Amendment 17 is related and ensures that the temporary modifications that have been made to the moratorium process can be applied to limited liability partnerships and certain types of registered societies in Northern Ireland. It inserts two paragraphs to the temporary measures in Schedule 8, so it largely mirrors what we see in the previous amendment.
Amendments 20 and 24 are minor and technical amendments, intended merely to make a clarificatory point to ensure that it is crystal clear that at the point when a company proposes a restructuring plan coming out of a moratorium, the company should contact all creditors with an explanatory note of a proposed restructuring.
Similarly, amendment 16 deals with an erroneous repeal of the Northern Ireland provisions. The provision being repealed is still needed, so the amendment rectifies that and I therefore commend it to the House. I turn briefly to one amendment raised by the hon. Member for Manchester Central (Lucy Powell). It seeks to make any pension scheme deficits a priority creditor in the event of an insolvency. I have to say that I can understand where her intentions are coming from in this proposed amendment. I am sure that, in recent years, we can all remember one or two high-profile insolvency cases—we have heard of some today—which feature large deficits owing to the pension scheme, and we can appreciate the uncertainty that that brings.
However, as always, when insolvency occurs, there is a balance to be struck when considering the order in which those owed money are paid out of the available assets. There are seldom enough funds to pay all creditors in full in insolvency cases. To ensure fairness, the law requires that available funds be distributed in a certain order. Secured creditors are paid out first for the sale of any property to which their charges attach. Without that, securities, banks and others who funded business activity would be less likely to do so, or would charge more to cover the increased risks they bear. It is essential that the insolvency system helps to give investors, lenders and creditors confidence to take the commercial risks necessary to support economic growth. Unsecured creditors are paid once the secured creditors and preferential debts, which include employees’ remuneration, have been dealt with, and they share the funds that are left. For limited amounts of unpaid pension contributions, which are preferential, any deficit to a pension scheme ranks alongside all other unsecured creditors, which will inevitably include trade suppliers, some of which will be small and micro companies. Therefore, the level of debt owed to a pension company can be very large—we know that. To raise the priority of these creditors and pay them ahead of not only unsecured creditors, but also, as the new clause would seem to suggest, preferential creditors such as employees for unpaid wages and floating charge holders would really upset the balance that has existed for a long time.
New clause 5 seeks a future review of trade union involvement in company restructuring and to commit the Government to specific proposals in spite of what that review might show. It does not seek to amend or improve the debt finance restructuring provisions in the Bill being taken forward as those most needed at this moment in time. The permanent restructuring provisions introduced by the Bill have been the subject of a considerable period of consultation and engagement dating back to 2015. The process included the then Government’s review of the corporate insolvency framework public consultation in 2016 and extensive public engagements since then, with a wide range of stakeholders. There were no strong or widely made calls at that time for trade unions to be given a formal role in the new processes proposed. The design of the new restructuring provisions already includes strong protections for employees. For example, a company in a moratorium will be required to continue paying wages and salaries during the moratorium. If they are not paid, the moratorium will have to come to an end.
In addition, the measures allow employment tribunal proceedings to continue during the moratorium, despite the fact that other types of legal processes are to be prevented during the moratorium. In cases where employees are creditors of the company that they are employed by, and so a party to a new restructuring plan in that capacity, they will benefit from the comprehensive set of general creditor protections built into the new measure.
On corporate governance reform more widely, the Government are implementing a number of reforms already enacted that strengthen the voice and interests of employees in company decision making, be they members of a trade union or not.
The Government also intend to put forward a further consultation on audit and corporate governance reform, taking into account the recommendations of three independent reviews of audit, the views of the Business, Energy and Industrial Strategy Committee and a recent industry development, so we do not believe that a separate review is necessary.
At this point, Madam Deputy Speaker, I am not able to accept any of the amendments, apart from the Government amendments that are in my name. I hope therefore that hon. Members will therefore withdraw their amendments.
Imran Ahmad Khan (Wakefield) (Con)
On a point of order, Madam Deputy Speaker. It has come to my notice that certain Members of this House, including well-known Members such as the hon. Member for Brent North (Barry Gardiner), have flagrantly flouted the law and joined the protests outside, boasting that they have broken social distancing measures. I am not going to talk about the legality of this, because that, I presume—I may be mistaken about this—is a matter for the police. What I am discussing here, and what I wish to bring as a point of order, is my concern for the community that makes up this parliamentary estate: the hardworking and dedicated staff, and, indeed, as a subsequent thought, even my fellow Members. I feel that we are going to be placed at risk when there has been such advertised and self-publicised breaking of the law. Vectors of the disease we are fighting, and which the Government are fighting, will be, if he returns to this House, allowed access to spread among the hardworking staff here. Are there measures to prevent such Members, who have flouted the law and are now possibly more likely to be contagious or infected by the disease, re-joining this House until they have undergone a period of self-isolation to ensure that we do not suffer a threat because of their aberrant behaviour?
The Chairman of Ways and Means (Dame Eleanor Laing)
I thank the hon. Gentleman for his point of order. I can well understand his consternation. The behaviour of hon. Members when they are outside this building is, of course, not a matter for the Chair, but what is a matter for the Chair and for Mr Speaker is the safety of Members of this House, of people who work here, and of the many, many people who have continued to work here, through a sense of duty, during these last difficult weeks. It will be obvious to the Committee and to anyone watching our proceedings that Mr Speaker has gone to a great deal of effort to make sure that Members and staff working here are protected. Social distancing rules, as one can see by looking at the Benches and the way in which this entire building is now set out, have been very rigorously developed to make sure that everyone who works in this building, who is here to do their duty, is protected and will not put other people, including their constituents and their families, at any risk.
If any Member of this House is openly flouting the rules that we have asked every citizen of the United Kingdom to observe to keep the virus under control, and to protect the vulnerable and to protect the NHS, then that Member is putting not only himself or herself at risk, but everyone else at risk as well. I hope that the hon. Gentleman’s observations will prove not to have been accurate. I am not suggesting that he would say that they were, but I cannot make any comment until I know the facts for certain. I hope that the facts are not as he has stated them, but if it transpires that the facts are as he has stated them, then it should be incumbent upon anyone coming into this building, if they know that they have put themselves at risk of contracting or passing on the virus, to act responsibly. I thank the hon. Gentleman for his point of order.
We will resume the Committee stage. I was hoping I would have some sort of indication that someone might wish to speak. I call Sarah Olney.
Sarah Olney (Richmond Park) (LD)
Thank you, Dame Eleanor. I was not expecting to be next, but I willingly take my place. I state my intention not to press my amendments, but I would just like to say a few words on why I tabled them.
We are in an emergency situation. The response to coronavirus has been first and foremost a public health response, but the necessary measures taken to contain the spread of this appalling virus, supported by all the hon. Members of my party, have now resulted in an economic crisis. While we look forward to a point where the public health emergency has passed at least sufficiently to allow some semblance of a normal life, the economic crisis is likely to have longer and more far-reaching effects. In my constituency, as in those of every parliamentary colleague I am sure, the most immediate impacts are being felt by our small businesses and the self-employed. If we are to plot the most effective path out of this crisis, it is to our small and growing businesses that we should allocate the most care and attention. Apart from the important role that they play in supporting our communities and providing jobs, the new businesses that will emerge from the current shutdown will be offering the innovative goods and services necessary for a new way of life that we may have to get used to. Our recovery—both physical and economic—depends on the next generation of entrepreneurs, and it should be the first priority of the Secretary of State to identify and support them.
The Liberal Democrats support the temporary measures in the Bill. They are sensible measures that should carry successful businesses through the current crisis until such time as they can thrive again on their own terms. We support them, however, only as temporary measures designed to respond to the specific challenges posed by the current crisis. We oppose the bundling into the legislation of permanent changes to our insolvency and corporate governance processes. Permanent changes should be subject to a greater level of scrutiny and debate. My amendment 14 sought to put all the proposed changes on a temporary footing, able to be renewed, but also allowing the proposed permanent measures to be reintroduced to the House at such time as we may be able to consider and debate them properly.
Introducing the proposals as temporary measures would also allow their effect to be properly analysed. Our particular concern is for the ipso facto clause, which can be triggered if an insolvency effectively ends a contract to supply. This will require key suppliers to continue to supply struggling companies, despite the risk that they may not get paid. This transfers the risk from the struggling company to the supplier, which, whether in an economic crisis or not, is unacceptable. In times when cash flow is limited, it is not sufficient protection for a supplier to get in the queue with other creditors in the event of one of its customers falling into administration. Suppliers should retain the right to choose to withdraw their services if they perceive that their resources will face a lower risk return elsewhere. To compel them to continue their supply would be unethical.
I am particularly concerned that such a change would have a disproportionate impact on smaller businesses, especially those that only have the capacity to service a handful of clients, and would be unduly disadvantaged by being required to supply goods and services without the certainty of being paid. I accept that there is a balance to be struck between the needs of customers and suppliers, and that during these difficult times supply chains are critical and need to be supported, but we need to take time to consider the long-term risks of introducing such a change to our insolvency procedures, and the introduction of emergency legislation is not that time.
The acid test of any new legislation at this time should be whether its provisions stimulate and support economic activity. There will be, regrettably, some businesses that will not survive the shutdown. For the sake of those who lose their jobs and livelihoods, it is imperative that capital and investment can be quickly diverted towards those endeavours that can thrive and provide new employment and economic activity. The increase in the scope of exclusions to the ipso facto clause will have precisely the reverse effect, injecting precious working capital into companies that cannot create economic value from it. Now more than ever is not the time to restrict our small business activity in such a way. I urge the Government to adopt the Liberal Democrat proposal that all the provisions of this Bill be time-limited and that we consider the permanent provisions more fully at a later date, when we would have greater insight into the impact of their introduction on our business environment.
Lucy Powell
We are happy to withdraw our amendment on the basis that the Minister undertakes to address the concerns of the trade unions leadership—concerns which they have raised with us about the loss of rights that may result from the Bill—in his meeting with them tomorrow. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 1 to 47 agreed to.
Schedules 1 to 3 agreed to.
Schedule 4
Moratoriums in Great Britain: temporary provision
Amendment made: 15, page 144, line 14, at end insert—
“Part 5
Entities other than companies
91 Regulations under section 14(1) of the Limited Liability Partnership Act 2000 may make provision applying or incorporating provision made by or under this Schedule, with such modifications as appear appropriate, in relation to a limited liability partnership registered in Great Britain.
92 An order or regulations under section 118(1)(a), (3B) or (3C) of the Cooperative and Community Benefit Societies Act 2014 may provide for provision made by or under this Schedule to apply (with or without modifications) in relation to registered societies (or to registered societies of the kind mentioned there).”—(Paul Scully.)
This amendment ensures that powers to apply Part A1 of the Insolvency Act 1986 to certain entities can also be used to apply Schedule 4 to the Bill.
Schedule 4, as amended, agreed to.
Schedules 5 and 6 agreed to.
Schedule 7
Moratoriums in Northern Ireland: further amendments
Amendment made: 16, page 165, line 4, leave out “2 to 8” and insert
“2 to 5, 7 and 8”.—(Paul Scully.)
This amendment removes the repeal of paragraph 6 of Schedule 1 to the Insolvency (NI) Order 2002, as the amendment made by that paragraph remains relevant for certain limited purposes.
Schedule 7, as amended, agreed to.
Schedule 8
Moratoriums in Northern Ireland: temporary provision
Amendment made: 17, page 178, line 14, at end insert—
“Part 5
Entities other than companies
55 Regulations under section 14(1) of the Limited Liability Partnership Act 2000 may make provision applying or incorporating provision made by or under this Schedule, with such modifications as appear appropriate, in relation to a limited liability partnership registered in Northern Ireland.
56 An order under Article 10(2) of the Insolvency (Northern Ireland) Order 2005 may provide for provision made by or under this Schedule to apply (with or without modification) in relation to—
(a) a registered society within the meaning of the Co-operative and Community Benefit Societies Act (Northern Ireland) 1969, or
(b) a credit union within the meaning of the Credit Unions (Northern Ireland) Order 1985.”—(Paul Scully.)
This amendment ensures that powers to apply Part 1A of the Insolvency (Northern Ireland) Order 1989 to certain entities can also be used to apply Schedule 8 to the Bill.
Schedule 8, as amended, agreed to.
Schedule 9
Arrangements and reconstructions for companies in financial difficulty
Amendments made: 18, page 180, line 17, leave out “and 901I (special cases)” and insert “(moratorium debts, etc)”.
This amendment is consequential on amendment 21.
Amendment 19, page 181, line 44, leave out from “etc),” to end of line 1 on page 182.
This amendment is consequential on amendment 21.
Amendment 20, page 183, line 34, after “as” insert “including”.
This amendment makes a minor drafting correction.
Amendment 21, page 184, leave out lines 7 to 30.
This amendment removes enhanced protection for creditors with interests in aircraft equipment, which will make it easier for airline companies to make use of the new restructuring process provided for by Part 26A of the Companies Act 2006.
Amendment 22, page 194, line 40, leave out “and 899B (special cases)” and insert “(moratorium debts, etc)”.
This amendment is consequential on amendment 25.
Amendment 23, page 194, line 44, leave out from “etc),” to end of line 45.
This amendment is consequential on amendment 25.
Amendment 24, page 195, line 24, after “as” insert “including”.
This amendment makes a minor drafting correction.
Amendment 25, page 195, leave out from end of line 42 to beginning of line 21 on page 196.—(Paul Scully.)
This amendment removes enhanced protection for creditors with interests in aircraft equipment, which will make it easier for airline companies to make use of the existing restructuring process provided for by Part 26 of the Companies Act 2006.
Schedule 9, as amended, agreed to.
Schedules 10 to 14 agreed to.
The Deputy Speaker resumed the Chair.
Bill, as amended, reported.
Bill, as amended in the Committee, considered.
Bill read the Third time and passed.
Corporate Insolvency and Governance Bill
Tuesday 9th June 2020
(3 years, 10 months ago)
Lords ChamberRead Full debate Corporate Insolvency and Governance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 3 June 2020 - (3 Jun 2020)
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, we have faced, and continue to face, a global health emergency on an unprecedented scale. The Covid-19 pandemic has brought significant challenges to our country and our economy. The imposition of strict social distancing measures has meant that many businesses are facing significant short-term difficulties and, some, sadly, the threat of insolvency.
Providing support to UK businesses is at the heart of the Government’s economic response to Covid-19. The fiscal package introduced by the Government has provided billions to businesses through support schemes such as loans, grants and the job retention scheme. The Bill will provide additional support to businesses by giving them the flexibility and breathing space that they need to bounce back from the Covid-19 pandemic. To achieve that, the Bill will do the following.
First, it will introduce a package of permanent reforms to insolvency law to give businesses the space and tools required to maximise their chances of survival. Secondly, it will temporarily suspend parts of insolvency law to protect companies from aggressive creditor action and give company directors greater confidence to continue to trade through the pandemic. Thirdly, it will extend greater flexibilities to businesses, allowing them to hold their general meetings in a way which is consistent with social distancing measures, and providing more time for them to file the information they need to with Companies House. This package of measures will help give businesses the support they need to keep trading, preserving jobs and value, and laying the foundations for the UK’s economic recovery.
The first set of measures is a corporate restructuring package that will make permanent changes to the UK’s insolvency framework. The Government previously consulted extensively on these changes to the corporate insolvency regime and we announced plans in August 2018 to introduce new insolvency rescue and restructuring procedures. The Bill will implement those reforms. This package of reforms will have an immediate effect in helping companies get through the Covid-19 emergency by providing them with the breathing space that they require to help them avoid insolvency as they seek a rescue. The package contains three elements.
The first is a moratorium, which will give financially distressed companies breathing space from their creditors while they seek a rescue. It will last initially for 20 business days, and can be extended. During this time, legal action is restricted against a company without leave of the court. There are some time-limited relaxations of the eligibility criteria for the moratorium to make it easier for companies to enter a moratorium during the Covid-19 crisis.
The second element of the corporate restructuring package is the introduction of a new restructuring plan. This will allow companies to restructure complex debt arrangements and bind creditors to the plan as long as certain thresholds are met. As the House would expect with a proposal that has a binding effect on creditors, significant safeguards are in place for them. For example, the court must be satisfied that dissenting creditors will not be made worse off than they would have been under the next most likely outcome.
The third and final element of the corporate restructuring package is the prohibition of termination clauses. Such termination clauses are often found in supply contracts and are triggered on the commencement of an insolvency or rescue procedure. Their prohibition will mean that contracted suppliers cannot terminate contracts, or demand additional payments, just because the company has entered an insolvency procedure or moratorium. However, there are again safeguards in place for suppliers to protect them from financial hardship as a result of their being required to continue to supply. In addition, due to the impact of Covid-19 on small companies, small suppliers will be temporarily exempt from this requirement.
The Bill also introduces some time-limited measures to provide additional support for businesses during the crisis. The first of these is the temporary suspension of wrongful trading liability. Wrongful trading liability is a deterrent against company directors continuing to trade when their company is insolvent. This temporary suspension will encourage directors of companies that would be viable but for the impact of Covid-19 to continue trading without the threat of personal liability. Let me reassure noble Lords that, while we believe this suspension to be necessary at this time, directors will still be bound by the rest of their legal duties under wider company law. In addition, measures under insolvency law to penalise directors who abuse their position will of course remain in place.
The second temporary measure will help struggling businesses by removing the threat of statutory demands and winding-up petitions issued against companies during the emergency. The Government have already temporarily suspended the right of commercial landlords to forfeit the tenancies of retail businesses in order to protect tenants unable to trade because of Covid-19. The vast majority of landlords and tenants have been working together to reach agreements on their debt obligations. Unfortunately, however, there have been cases of landlords using aggressive debt recovery tactics, including the use of statutory demands and threats of winding-up petitions, to put undue pressure on tenants. This provision will give businesses the opportunity to reach realistic and fair agreements with all creditors.
All the temporary insolvency measures in this Bill will expire one month after Royal Assent. However, the Bill contains the required powers to extend the temporary provisions should it prove necessary to do so due to the ongoing crisis. Furthermore, the Bill contains the temporary power to make other amendments to insolvency or governance legislation. This will facilitate a rapid response to overcome the emerging challenges to businesses that result from the Covid-19 pandemic. As ever, the House will of course have the opportunity to scrutinise the use of these powers if they are needed.
The final set of temporary measures deals with meetings and company filings. The Bill makes it easier for companies, mutual societies and charitable incorporated organisations to comply with legal requirements on holding AGMs and other meetings while keeping their shareholders and members safe and respecting social distancing rules—as we are doing in this House. This flexibility applies retrospectively from 26 March, giving businesses the certainty that they will not be penalised for trying to do the right thing during the pandemic. The measures will also enable AGMs to be postponed until 30 September this year where necessary.
On filing requirements, we are giving hard-pressed companies more time to submit annual accounts, confirmation statements and various notices of relevant events, such as the appointment of a director, to Companies House. Lenders will also have more time to register a charge against a company’s assets. This follows the announcement made on 25 March that Companies House had extended the period for filing accounts. Over 100,000 companies have successfully applied for the three-month extension that is available. This measure will further ease the burdens on businesses at this difficult time while ensuring ultimately that information is still filed with Companies House within a reasonable time.
Overall, the package of measures in this Bill has been widely welcomed by businesses at this critical time. Following its passage through the House of Commons, the chair of R3 in Scotland, the trade association for the UK’s insolvency and restructuring professionals, stated that:
“The proposed legislation will give both solvent and insolvent businesses crucial breathing space and increased legislative flexibility to review options without being pushed prematurely into an insolvency procedure. This new approach could make a significant contribution to repairing the economic devastation caused by the current pandemic.”
The Government are committed to supporting UK businesses throughout the emergency. These measures are being implemented to alleviate some of the current challenges that businesses are facing, maximising their chances of survival and allowing them to continue trading and to help the UK economy bounce back from this crisis. I beg to move.
Lord Stevenson of Balmacara (Lab) [V]
My Lords, I thank the Minister, his colleagues in the department and the Bill team for all the engagement that we have had on the Bill in recent weeks. I am also grateful that a number of virtual meetings have been set up for Members of your Lordships’ House. Several helpful letters have also been received. We are therefore well briefed about this sensible and proportionate Bill and cognisant of the reasons why it is being brought forward on a fast track. I can confirm that, while we will give the Bill good scrutiny, our objective as Her Majesty’s loyal Opposition is to be constructive and to ensure that our businesses get the support they need now and in the long term.
A large number of Members of your Lordships’ House have signed up to speak in today’s debate, and we look forward to their comments and questions to the Minister. We will put down a range of amendments tomorrow based on today’s debates as well as the submissions that we have received from organisations and bodies concerned with this issue. I also thank the Library for its very helpful note on the Bill.
The Minister said that although some of the measures in the Bill had been consulted on a few years ago, it is at heart a part of the Government’s package of measures to address the supply shock caused by Covid-19. As the impact assessment for the Bill states, the case is certainly strong:
“Early models of the impact of Covid-19 have suggested that UK GDP growth in 2020 … could range between -3% and -13%, with scenarios for corporate insolvencies ranging from 30,000 to 160,000.”
However, does this not raise the question of what is going to happen to the other corporate insolvency measures which were consulted on in 2018-19? What about the wider policy response arising from various significant corporate failures in recent years such as Carillion, which is now overdue?
We are now entering the end of the lockdown phase, and the challenges ahead are becoming clearer. There will be a huge amount to do to ensure that the recovery is as short and strong as possible so that we minimise the impact on unemployment levels and the wider economy. I agree that it would have been wrong to hold back the measures in this Bill because other proposals were not yet ready to be included, but the last thing we want is for these issues to be dealt with in silos. Provisions in the Finance Bill 2020 ensuring that HMRC is a secured creditor in insolvency proceedings are surely a classic example of this, potentially running a coach and horses through this Bill. Many issues need a cross-government approach, which is appropriate. Our insolvency framework touches almost every part of the economy and helps to create the confidence and public trust which underpin trading, lending and investment.
I turn to the Bill. We support both the permanent changes being made to insolvency law and the temporary changes being made to insolvency law and corporate governance. Others speaking today will undoubtedly make particular points about the Bill, and we look forward to the Minister’s responses. To get us started, I will mention a few areas where we will put down probing amendments.
The position of employees seems unsatisfactory, both in terms of their lack of formal involvement in the processes and in relation to outstanding pay and other claims during the moratorium. The classification of pension scheme deficits, particularly for defined benefit schemes, as unsecured creditors seems unfair and perhaps should be reviewed. Many of the companies likely to take advantage of the new measures will be SMEs, and many SMEs will be unsecured creditors in insolvencies of other companies. The current insolvency regime was introduced in 2003 and is basically unchanged since then. It gives preferential protection to secured creditors and, as noted earlier, HMRC has legislated to protect its position. Is there a case for reconsidering the treatment of unsecured creditors?
On the length of the moratorium, Chapter 3 does not contain a maximum period and there appears no overall limit on the number of extensions available. Is that right? The new position of monitor is welcome but, apart from the requirement that he or she must be an insolvency practitioner, there is no other requirement set out in statute and the appointment is left wholly to the discretion of directors, with no role for creditors. We surely need much more detail here.
As has been said, the Bill helps struggling businesses by temporarily removing the threat of winding-up proceedings where unpaid debt is due to Covid-19; and it introduces temporary measures to void statutory demands against companies during the emergency. We support those. It is important that the measures suspending liability for wrongful trading do not relieve directors of their duty of care to act responsibly and in good faith, as specified in Section 172 of the Companies Act 2006. Should these measures not be put into the Bill?
Given the time that has elapsed since the lockdown, and the continuing reduction of normal economic activity, we would not object if the Government wished to extend the initial period of the effect of the Bill to 30 September 2020, even though, as the Minister said, they have power to extend it using secondary legislation. Some of the issues I have mentioned could be dealt with by inviting the Minister to clarify on the record what the Government mean by the current drafting. In other cases, we would hope to convince Ministers that substantive action may be required in subsequent legislation, and we will be pressing them to take an early opportunity to do so.
I mentioned earlier that the measures in this Bill needed to be considered in the wider context of the changes that will be needed to ensure that our economy recovers quickly and sustainably after Covid-19. One of the most shocking recent corporate collapses was that of Carillion, because it seemed to arrive without warning, despite active monitoring by the Government, and it affected tens of thousands of workers and subcontractors. In recent years, many familiar high-street retailers have closed, leading to devastating implications for workers, their families and wider communities. These collapses raise a number of questions. Why are our systems of auditing and reporting not able to pick up possible corporate failures earlier? Who is to blame? Do we focus enough on restructuring and rescuing companies which get into trouble, and do we have the skills and experience in the professional services needed to do that?
In a recent report, the TUC argued persuasively that the insolvency law is currently too heavily weighted in favour of creditors, often the banks. Other countries, notably Germany, take a very different approach. Staff in companies which crash and burn face substantial financial losses when their firm goes to the wall. Gaps in employment law also mean that those in insecure work, including agency workers, zero-hours contract workers and the self-employed—the so-called gig economy—miss out on even basic protections. Despite promises to enact the recommendations of the Taylor review, we still have the situation in this country where all employees are workers, but not all workers are employees. Why the delay?
One of the reasons that Carillion failed was that it carried huge levels of debt, a situation that is, unfortunately, likely to recur more widely in our economy as we recover from Covid, creating inherent risks to which boards, investors and auditors need to be able to respond. Are we confident that we have the systems in place?
Over the next few years, the Government must bring forward an integrated approach to the issues raised by the recent series of corporate failures, including: more corporate transparency and reform to the role and function of Companies House; training for directors, owners and senior management of public companies; legislation for CMA reforms for the appointment and oversight of auditors, and for the Brydon recommendations on compliance and practice; better insolvency practitioner regulation; the future of “pre-pack” administrations; making the Prompt Payment Code statutory, not voluntary, and giving the Small Business Commissioner real powers to ensure that the code is enforced; and ensuring that consumers have a central role in relation to policy on financial services and decisions on mergers and acquisitions.
Finally, the Bill is aimed at helping businesses, but why are these measures not also available to individuals, millions of whom will be facing unmanageable debt? A report in the papers today suggests that British households are expected to rack up debts worth £6 billion because of the coronavirus crisis. That is on top of figures which show that, at the end of January 2020, UK household debt was around £1,680 billion. Some 12.8 million UK households have no savings or savings of less than £1,500. The Government have committed to introduce a breathing space scheme for personal debt, and to roll out the successful statutory debt management plans which operate in Scotland. We urgently need these to be introduced now.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I draw attention to my financial interests, as in the register. Although we broadly support the Bill, it is a little frustrating. It does too much by permitting things in a fast-tracked temporary measures Bill, and too little because it has left out other important measures similarly well consulted on. The Minister may conclude that that balance is like Baby Bear’s porridge and just about right. Nevertheless, there are some lumps in the porridge. Expediency has meant that it is the business-favouring parts of the consultations that are being fast-tracked and the more social-facing, small business and employee-facing measures that are left out. I therefore ask the Minister for reassurance that the Bill is not seen as removing pressure from legislating other important reforms on corporate governance and reporting, ESG, insolvency practitioners, audit and replacement of the Financial Reporting Council. I certainly do not see it as a justification for holding off.
The moratorium provision was expected, but there may be traps in the way it works, especially in the event of a following insolvency. There are changes in the insolvency distribution waterfall, with unpaid moratorium debts, and pre-moratorium debts without a payment holiday, being given a new super-priority. Both the treatment of what becomes super-priority and what is “normal supply” disadvantage smaller suppliers. All their pre-moratorium debt is in the subordinated category and normal supply favours stronger creditors’ amounts of super-priority, as they will have contracted shorter payment terms. Will events be monitored, and rankings readjusted if the super-priority does result in outcomes with less in the pot for SMEs, unsecured creditors and pension fund deficits? Unfortunately, it also looks as though the slaying hand will be held by HMRC, with its new claims for extra super-priority, and by banks, as they are outside the ipso facto provisions. It may be that security is not exercised in moratorium, but where are the provisions that prevent banks charging special fees and hiking interest so they can profit in moratorium, or making repayment acceleration demands to secure larger sums with super-priority? Such actions will not help rescue companies, are unfair and should be restrained. That is not to say that the moratorium concept is unwelcome but, because we do not have the time now to weigh up all the checks and balances, it would be sensible to hold its operation under review, to see how it worked and for revisions in the light of unintended consequences to be brought forward.
The temporary suspension of winding-up petitions also has lumps. In a sense, it robs Peter to pay Paul and whether it is the potential petitioner or the company that is smaller, more at risk or more aggressive, is not always one way. I therefore recognise the compromise in trying to keep the period short. However, under Schedule 10, the courts could impose retrospective restoration costs on those required to withdraw petitions made under the current law. Unlimited, might that be a retrospective step too far?
I am conscious that fast-tracked emergency legislation is not appropriate for complex changes and additions, but a few simple things within the scope of the Bill could be achieved. My noble friends will say more.
I regret that there are not more provisions to assist with personal bankruptcy. Australia has raised both the payment time and the financial threshold for initiation of proceedings.
Baroness Bloomfield of Hinton Waldrist (Con)
I remind the noble Baroness of the time limit.
Baroness Bowles of Berkhamsted [V]
What is happening in the UK? Additionally, I regret that the Bill does not include simple Companies House provisions on identity verification, enabling it to play a role in preventing rogue or criminal elements abusing the current crisis to commit fraud. Again, there has been consultation already, but how is that being followed up?
Baroness Bloomfield of Hinton Waldrist
I ask the noble Baroness to bring her comments to a close.
Baroness Bowles of Berkhamsted [V]
I intend to revert to the various matters I have mentioned with amendments.
Baroness Neville-Rolfe (Con) [V]
My Lords, I support my noble friend the Minister on the measures being taken here and elsewhere on business support.
Timeliness is everything in a crisis. I commend the Minister on the speed of the measures that we are debating, although I remain frustrated at the tin-eared refusal elsewhere in government to reduce social distancing from two metres to one metre and the extraordinary introduction of quarantine at our borders, which was needed in February or March but is an act of self-harm today. The problem is that both are decimating businesses. So, I particularly support the emergency arrangements in the Bill. They allow closed annual general meetings, delay filing deadlines for Companies House, and temporarily remove personal liability for wrongful trading and the threat of winding-up petitions. I speak as a director with an interest—I draw your Lordships’ attention to my entry in the register—a chartered secretary and a fellow of the Global Governance Institute.
However, company law has been built up over generations. Rapid changes can alter the balance of our much-admired corporate regulatory framework. The pension funds and insurance companies on which we depend need the opportunity to probe accounts at Companies House, especially in a fast-moving market with the sale of a struggling company sometimes being the right solution. Shareholders need to be able to hold companies to account at annual general meetings. The Bill rightly sunsets these provisions but there are powers of extension. I ask the Minister to promise that he will be sparing in their use. If not, their understandable use retrospectively to help firms from the start of the cliff edge in sales could be questioned.
The main provisions in the Bill bring forward long-planned changes in insolvency law. It is a little cheeky to use what is essentially an emergency measure for these reforms. However, I confess to doing the same many years ago when I led the work on the Food Safety Act. This reforming legislation had been in the famous Whitehall drawer for nearly 10 years when Mrs Edwina Currie precipitated a crisis by wrongly asserting that most eggs had salmonella. Our Bill then secured an immediate slot.
I note that the insolvency provisions have secured good support, having been honed in industry exchanges. They have become urgent because many companies may now be heading for insolvency as a result of our severe Covid controls. The changes give them breathing space now and if they suffer in future, but it is worth reading the impact assessment prepared by BEIS, which it kindly took me through. The net benefit is an impressive £1.92 billion when discounted over 10 years, but that netting-off hides costs of £2.9 billion, which someone must find.
We want to make absolutely sure that the Bill is fit for purpose. I understand that in one of the most difficult areas, discouraging the extraction of ransom payments is precedented in utilities and IT. I ask the Minister for an appraisal and costing of that experience before we reach Committee.
Another issue was raised with me by the British Property Federation. It wants steps taken to reinstate the provision in Section 129 of the small business Act 2015 on pre-packaged administration, which expired unexpectedly, I believe as a result of the Covid emergency. Can we solve that in this Bill?
Finally, I cannot end without commenting on one area in which I have been the most vocal and which was also the subject of legislation that I took through the House: the timely payment of smaller suppliers, and the Small Business Commissioner. Can my noble friend the Minister summarise current expectations on the scale of payment delay and advise on any plans for updated legislation at a future date?
Lord Blunkett (Lab) [V]
My Lords, I concur with many of the comments that have already been made. I support the thrust of the Bill.
I want to talk about the immediate situation and, therefore, the moratorium. I welcome it but, like my noble friend Lord Stevenson, I think that, in its initial implementation, it is in danger of being too short to be meaningful to many small and medium-sized enterprises. It is about enterprise and entrepreneurship—that is, not just maintaining what we have now but encouraging and supporting those coming out of the virus crisis, as well as providing a bedrock for the future. Would the Minister be kind enough to say a little more about the intentions of using secondary legislation if the initial moratorium period is not to be extended in the Bill?
It would also be useful to know more about the positive role of insolvency practitioners, rather than their negative one. There is potential here to be extremely helpful to those who have a major part to play in the future of our economy but currently face a dangerous potential cliff edge if investors trigger their demise.
Mention has been made of corporate responsibility, not least by my noble friend; I agree in relation to employees but it also applies more widely. I wonder whether we could encourage larger companies to see their supply chain as crucial to them rather than sometimes exploiting their weaknesses, because this is very much about where power lies. I also wonder whether they could mentor and support as part of the recovery programme, and therefore be a positive gain.
I very much welcome at least temporary help with personal liability. For people taking up the opportunity to start a new business and those who are clinging on to survival by their fingertips, personal liability and the reputation that goes with it are important. If we can get this right and avoid those people who deliberately exploit the situation then come back in a different guise with exactly the same company—the bad eggs, to echo the reference made by the noble Baroness, Lady Neville-Rolfe—while ensuring that personal liability absolutely does not discourage people or create unnecessary fearfulness at this moment in time, that would be a very substantial step forward.
It is important that these measures, temporary as many of them are, are seen in the context of the long term. We should therefore see what works and try in future to build in those aspects that have been beneficial to both British enterprise and our wider social well-being.
Baroness Kramer (LD) [V]
My Lords, I have long argued that the UK needs an equivalent to the US’s Chapter 11, so I welcome the Bill. However, the history of Chapter 11 legislation in the United States has not been straightforward. Many companies turn not to federal law but to state law for greater ease of use, speed and cost. Given the complexity and the probability of unintended consequences, I join those who believe that the permanent measures in the Bill, in contrast to the temporary Covid-related measures, should be properly reviewed with a sunset clause or similar mechanism.
I also believe strongly that the Government should drop the provisions in the Finance Bill which would give HMRC, as a creditor, primacy over other creditors. If that is not dropped, small suppliers will be even harder hit in a ripple effect which our economy cannot afford and which in the long run damages the national tax take even more. I want the Government to use the Bill to give greater protection to small creditors, typically trade creditors, in an insolvency.
We know that most small businesses are at a disadvantage when negotiating with big businesses. They often find that they have to accept long payment terms if they are to win a contract. They also find themselves pressured into providing payment holidays. Small suppliers are being put at risk, especially in these uncertain times. The public sector pays its suppliers promptly. The last report from the Financial Services Ombudsman showed that only 1% of payments from public sector bodies took over 30 days and most were within 15 days.
The picture is not the same in the private sector. Late payments to small businesses rose to £23 billion in 2019 compared to £13 billion the year before, according to Pay UK. Last November, long before Covid, the Chartered Institute of Credit Management had to suspend 20 firms from the prompt payment code for failing to honour their commitment to pay 95% of all supplier invoices within 60 days. These were huge and famous companies, including GlaxoSmithKline, AstraZeneca, Unilever, IBM and Diageo. If the public sector can pay in 15 days, the big players in the private sector can pay in 15 days, never mind failing to meet 60 days. I am hoping for changes in the Bill that will strengthen the position of small suppliers. At the very least, the Government should exclude from any of their procurement processes any company that does not observe the prompt payment code in all parts of its business, not just in its government contracts. There is a very strong argument for a tougher prompt payment code and for making the code mandatory.
Secondly, under the moratorium offered in the Bill, payments due to small entities should be paid no later than the end of the first moratorium, not subject to a rolling moratorium which could run for a year or more and, frankly, sink the small supplier. If the moratorium fails and winding up follows, small entities should be pari passu with claimants who refuse to give payment holidays, on the grounds that payment holidays given by smaller entities are invariably given under duress. Many banks, for example, never give payment holidays—for example, for overdrafts—and so have priority in wind-up.
Lastly, I want to explore the issue, raised by my noble friend Lady Bowles, that SMEs can be disadvantaged if they are encouraged to exclude themselves from supplying the company in a moratorium, because that is when payment is best assured. I am sure there will be many more points as we deal with the details of the Bill, but this House understands the direction in which I am now urging the Government to move.
Lord Hope of Craighead (CB) [V]
My Lords, this is a formidable Bill. Some years ago, I edited the chapters on companies and insolvency law in a practitioners’ textbook and I used to practise in this field myself, so I have some insight into how extensive and complex these subjects are. I pay tribute to those responsible for putting the Bill together. At first sight they appear to have covered the ground very well, but their product has been a challenge for us in this House as we try to master this emergency Bill in such a short period of time.
I have no problem, in principle, with the temporary provisions about meetings of companies and other bodies, or the extension of the periods for filing accounts and providing information for the registration of changes in corporate governance. These are sensible measures in a situation where deadlines of that kind are incapable of being met. The wrongful trading provisions and the provisions about corporate insolvency, however, need to be looked at more carefully. Concern has been expressed about the phrase,
“the court is to assume that the person is not responsible”,
in Clause 10, which is about the suspension of liability for wrongful trading. Can the Minister tell the House whether this assumption is intended to be irrebuttable? If it can be rebutted, the protection the clause offers will be less certain than the word “suspension” in the clause suggests. Directors, who, as has been pointed out, may be subject to action for other breaches of duty, will need to know where they stand in this respect.
As for the moratoriums, it is not difficult to see the value of these for companies in financial difficulty, but giving protection to debtor companies that delays the taking of remedies against them by their creditors is bound to have implications for the creditors too as time goes on. It is important to get the balance right between these two competing positions. My impression is that the banks are content, for the time being, not to press too hard on companies that are in difficulties, and the property market is in such an uncertain state in present circumstances that there is little incentive for the holders of fixed securities to call them in. However, in the longer term, as creditors become less relaxed about the situation, challenges will arise that will need to be faced up to. That may be a further reason for keeping the provisions of the Bill under careful review.
I have one or two particular points to make. Further thought needs to be given to limiting debts that are eligible for priority as moratorium debts in order to avoid abuse of that privileged position and, as has already been suggested, damage to the position of HMRC as a preferential creditor, given the immense harm that situation may create, particularly for other creditors. On the notification requirements in Chapter 3(A), should the company not be required to provide a list of its creditors when making the application, to assist the monitor? As for Chapter 3(A9), should there not be a limit on the number of extensions, and an overall limit on them without the creditors’ consent? As for Chapter 5(A35), to avoid the abuse of the process should there not be an express duty on the monitor to ensure that the company does not undermine rescuing it as a going concern? I hope to come back to these and other details in Committee.
Lord Balfe (Con) [V]
My Lords, I too start by thanking the Minister, not only for his clear presentation of the Bill but for his letters and briefings; they have been most useful. I shall make just a couple of points. They concern members of trade unions as well as employees who have a legitimate interest in what is happening due to this Bill. I speak as someone who has a son who runs a small business, so I am not completely unfamiliar with this. It is important to remember when we pass this legislation that employees also have legitimate interests when restructuring plans are adopted. I realise that, particularly in small enterprises, the level of trade union membership is very low; however, whether in a union or not, employees deserve protection and to be taken into account.
I would like the Minister to clarify, on the record, his attitude to protection for people who work in these businesses. In the debate in the other place, the Minister said:
“Importantly, a court can refuse to sanction a plan if it is not fair and it is equitable to do so. When making this assessment, one would expect the court to be mindful of the interests of employees in any pension schemes affected by that plan”.—[Official Report, Commons, 3/6/20; col. 952.]
I would like the Minister to say that he is happy with that statement, made by a Minister in his own department, and to place it on the record in the House of Lords. I would also like him to confirm that the Government expect courts to satisfy themselves that plans placed before them are indeed mindful of the interests of employees, if necessary by inquiring whether there are any relevant trade union staff associations or other bodies and whether they have been consulted and have any views to place before the court. We cannot just leave it to the court to hope that things go right: they need to be proactive, to an extent.
I also hope the Government will consider giving pension scheme deficits the status of a priority creditor. This would give them priority over unsecured creditors, and in defence of this proposal I remind the House that a pension scheme is as much a part of an employee’s income as the rest of their monthly or weekly salary. It represents, in short, deferred earnings: it is not a bonus at the end of one’s working life but something that accrues daily throughout it. As such, I believe it has a right to be considered near the front of any queue. I look forward to hearing the Minister’s response to these points and hope he will feel able to clarify them for the record.
Lord Mann (Non-Afl)
My Lords, in any major economic crisis—and this is part of the current world crisis—there will be winners and losers. I was quite amused but not surprised to hear that the hot tub industry is doing incredibly well as people with sufficient money are installing them in their garden—in lieu perhaps of holidays to hotter climates. There will be winners, and entrepreneurs will be critical in coming out of any economic recession. There has been some fascinating research into how new entrepreneurs were critical to economic regeneration in the southern states of the US after some of their climatic disasters.
Some of them will be winners. There will also be losers, some of which may be big and well known. I do not wish to pour gloom by suggesting which kinds of companies, but household names may not survive the next six months, because of how shopping is changing and may permanently change as a result of consumer behaviour.
Therefore, this Bill has many importances—some perhaps beyond its initial worthy impetus. One area that has less accountability and is more poorly regulated than elsewhere is that of insolvency practitioners. From my experience, they always seem capable of charging the fees they are entitled to charge but sometimes, in cases where I have assisted companies, they do not seem to do a great deal more than that. That is a small sector that needs stronger regulation.
There are also landlords exploiting the situation, some of them offshoring, doubtless often for tax purposes, and in receipt of taxpayer support, and endangering the small, emerging businesses—which are sometimes well located and paying higher rents—which are precisely the businesses that will be the engine of recovery and which could be killed by cash flow. The invidious position of those offshoring is not addressed here and could be considered.
Pension funds have been raised already. If major, traditional, long-standing companies end up being the losers, some of them will have major pension funds. It is not just the social justice question, which is of significance in itself, but the economic repercussions for both the local economy and the UK economy if a group of pensioners or soon-to-be pensioners have a significantly lower purchasing power when they have a higher propensity to spend. So the protection of pension funds deserves more attention in the progress of this Bill.
There is also the question of employees. I have assisted people going to employment tribunals where the assets of the company and the directors remain; they start trading again on the same premises, doing the same work the next day, having got rid of a lot of people who then find that, even if they win in a tribunal, there is nothing to claim from. That is not a sensible way to run any economy. The Minister may wish to comment on whether this Bill will have any impact on strengthening that position.
Finally, there is the question of football clubs. That will be a big one that we should be very aware of, in terms of some of the names that may go under.
Lord Wei (Con) [V]
My Lords, I declare my interests as a company director with involvement in a number of firms that are affected by the current crisis. I welcome this Bill. We need to do what we can to enable firms to weather this particularly difficult situation. In the time that I have, I will highlight from some of the conversations I have been having in the marketplace an observation that there seem to be at least three types of company situation, although I am sure that there are more.
Broadly, there are companies that were basically already insolvent or on very thin margins before the crisis hit us, those that are temporarily insolvent but which are resilient and have a future, particularly those that have a pivot or a plan—we know the stories of much being done in incredibly innovative ways to pivot businesses; for example, pubs becoming supermarkets and drive-through cinemas massively expanding on stately homes—and there are those that are solvent and doing well but, frankly, have taken advantage of the various available schemes and liquidity to give themselves an extra cushion.
There is a danger that, as we move forward, agencies, regulators and financial institutions will not be able to distinguish between these three types of organisation. I am particularly keen that this Bill should provide some of the framework for that greater understanding. For example, a business with great prospects that has for whatever reason decided to delay reporting or to take advantage of some of the measures in this Bill may find later on that it impacts either their credit rating or certain non-legally controlled matters such as the decision to grant invoice discounting, which can sometimes be a pure business decision and not one necessarily governed by law.
We are hearing stories of company directors not being able to get mortgages currently because they are taking advantage of the various available schemes. Is there a danger, as I am hearing from certain quarters, that banks may force businesses into voluntary insolvency in exchange for equity? Under these measures, it may well be that, if I am a bank that wants to avoid being lumped together with other creditors in an unfavourable situation, it would be better for me to withdraw the overdraft to a business unless it gives me equity in that business, which would mean that I would be protected from that creditor-type situation.
Finally, there needs to be a longer-term view. Can we use technologies such as blockchain and give businesses a new option that is not just debt or equity? There are all kinds of instruments: sharing of royalties; securing or collateralising risk within a supply chain, which means that businesses do not always have to rely just on cash from creditors or new investors; starting to separate the delivery of essential goods and services within a supply chain from the actual survivability of a business, as we have seen in the banking world and could do for our supply chains.
Is this thinking around the three layers being taken into account? How can we avoid a cliff edge in a month’s time, when lots of businesses might start filing for bankruptcy—do we need to taper this over a long period? What are the Government doing to ensure that credit agencies and other bodies make wise business decisions that may not be governed by these laws but which will still have a huge impact on whether we have a zombie economy or one that will thrive and pivot into the new age to come?
Lord Adonis (Lab)
My Lords, I follow the noble Lord, Lord Wei, in spirit as well as in order, because of his significant concluding remarks on political economy about supporting companies that do not need to be forced into insolvency because they have fundamentally sound business models. I have a question for the Minister, leading on to a wider point.
My question, which shows that I am not an expert in company law, but which will become increasingly significant. particularly if the emergency measures are extended, is: in what order do the Government come as a creditor? My understanding is that where the Government take the form of HMRC as the taxman they are a preferential creditor under the provisions of the Finance Act. However, a lot of the Government’s priority for being repaid will come through coronavirus business interruption loans and other forms of financial support, which could conceivably include furlough support if that is continued into the medium term. I would welcome the Minister’s explanation of this, but my understanding is that where the Government come in the queues depends on what category of government support it is. If it takes the form of a coronavirus business interruption loan paid through a bank, they simply come in the order of the bank. There is no provision for the Government to get any recognition of the fact that they have possibly pumped huge sums into companies through, for example, furlough provision. I would welcome the Minister’s confirmation of that at the end.
However, the wider political economy point behind this is stark staring obvious. It is important that we stand back from the minutiae of company law. The fact of the matter is that in a lot of these companies the organisation that has put most money into the company, particularly in the recent past, will be Her Majesty’s Government, through furlough support, business interruption loans or possibly, if the Government chose to exercise discretion in the matter, their ability to reschedule or suspend payments due to HMRC.
The question that surely arises is: are the Government taking a strategic approach to their own role as a creditor across the various different forms of credit that they are providing to maximise the health of the economy? My understanding of the Bill is that that is not taking place at the moment. Understandably, we have a lot of very techy changes to insolvency and company law, essential for dealing with the immediate crisis we face in the next few weeks, but the point I make to the Minister is: would it be sensible for us to stand back from this and look, in a political economy sense, at the role the Government could play in sustaining the strength of the economy by pooling all the support they are providing to companies—those covered by the Bill with the Government as a creditor for loans, those covered by other legislation, such as the priority given to HMRC under the Finance Act, and those that do not appear to be covered at all, but which are hugely important, such as the furlough support—and for the Government themselves to take a view? That might well, for example, involve the Government taking stakes in companies as a means of sustaining them over the medium term, rather than forcing them, even if it is in a somewhat elongated provision, into insolvency.
That leads to the comment I would like to make. We have, of course, been here before; we are not reinventing the wheel in terms of very serious economic shocks. During one of the greatest shocks of the last century, the financial crisis of 1929 to 1931, John Maynard Keynes—maybe the greatest gift of this country to economic science in history, apart from Adam Smith—argued that the solution to dealing with the crisis faced then, with mass company insolvency in the 1930s, was not wholly in the public or the private sectors, but rather that the Government should
“experiment with all kinds of new sorts of partnership between the state and private enterprise. The solution lies neither with nationalisation nor with unregulated private competition; it lies in a variety of experiments, of attempts to get the best of both worlds.”
That is the position we face now. I would very much welcome some reassurance from the Government that they are looking at these wider political economy considerations.
Lord Hodgson of Astley Abbotts (Con) [V]
My Lords, I begin by thanking my noble friend for his explanation of the Bill’s proposals. Secondly, I draw the House’s attention to my entry in the register of interests as a director of several companies that would be affected by the Bill’s provisions. It has been made clear that the Bill has been brought forward because of the pandemic. I understand and support that. Nobody who has been a director of a limited company will be unaware of the dangers of trading while insolvent, and who can judge what is solvent in the present very confused circumstances? This aspect of the Bill has my support for a further reason: all the provisions are time-limited, so even if our inevitably rushed judgment proves faulty the sunset clauses will ride to our rescue.
Wearing another hat, I chair your Lordships’ House’s Secondary Legislation Scrutiny Committee, which has been looking at, examining and reporting to the House on a great number of coronavirus regulations. There has emerged a tendency of the Government to try to tack on to coronavirus regulations some permanent changes to our law. These may not be objectionable, but they pass through under the radar of the coronavirus regime. We have been drawing these to the attention of your Lordships’ House in our weekly reports. Mixed provisions in regulations, which are of a lower order of significance, are one thing; mixed provisions in primary legislation, leading to statute law, which is what we have here, are quite another. Under the guise of the requirements of the pandemic, the Government are rushing through—I use that word advisedly—permanent changes to the insolvency laws of this country.
Let me be clear: I am not opposed to changes and review of insolvency laws. Some 15 years ago, I sat where the noble Lord, Lord Stevenson, would be sitting if he was in the House, leading for the Conservative Party on what became the Companies Act 2006. We brought together every aspect of company law with two exceptions, one of which was insolvency law, because the complexities were too great for us to reconcile them there and then. So, 14 years later, I quite understand that the situation will not have improved, but it remains an immensely complex area, reconciling the irreconcilable. It is an area where unintended consequences, as the noble Baroness, Lady Bowles, pointed out, crop up with unhelpful frequency and where there are people who seek to exploit gaps with unattractive and unregulated behaviour.
What am I concerned about? My worries include the changes to the creditor position of HMRC; the ability of creditors to game the system where the banks and financial institutions are sufficiently bound into the new approach; the future role of the pre-pack watchdog; and provisions for appointing monitors and for ensuring that they are not conflicted. All these are no doubt answerable, but they are not properly answerable in a rush.
To conclude, I understand the need for this legislation to be passed speedily, but I deplore permanent changes to our laws being made under the guise of the pandemic. I hope that my noble friend will consider tabling amendments to apply sunset clauses to the whole Bill. The Government will get their Bill and we could then come back to these very knotty and conflicting issues in calmer times and with the benefit of some real-life experience. In his opening remarks, my noble friend referred to the R3 briefing from Scotland. The R3 briefing from England makes it clear that it is not clear about the detail yet. Indeed, the Minister’s own departmental website quotes Jennifer Marshall, a past president of the Insolvency Lawyers’ Association, as saying that she is looking forward to
“digesting the detail with interest.”
If these two people, with their great experience, are not able yet to understand the detail, surely we should not be rushing these provisions through now.
Baroness Drake (Lab) [V]
My Lords, I draw attention to my registered interests. The Government’s desire to allow distressed companies a breathing space while exploring a potential rescue is fully understandable, but fast-tracking cannot ignore an unintended consequence. The Bill weakens the position of DB pension schemes and the Pension Protection Fund in the event of insolvency or restructuring. It grants super-priority status for unsecured banking and finance debt if the moratorium is followed by an insolvency or restructuring, ranking it above pension scheme debt. Importantly, trustees might not be able to enforce a security that they have in place with an employer, such as a floating charge or a security over property. That is a big issue if the scheme’s covenant and valuation had been tied in with that security.
If the company does not emerge from the moratorium intact, elevating this class of unsecured creditors could be materially detrimental to the level of recoveries that the PPF, acting as creditor for a scheme, can achieve through insolvency proceedings. The moratorium and restructuring plan process will not, as it stands, trigger a PPF assessment period or a scheme’s Section 75 debt. This means, and here is the rub, that the Pension Protection Fund is not engaged as a creditor for the scheme. It will not have a voice in the restructuring plan discussions and new arrangements intended to shape the future of a company, which is the scheme’s sponsoring employer. Without a trigger to engage as a creditor, the PPF’s ability to secure better outcomes for the scheme is damaged, yet some finance parties could accelerate all debt and loan payments during a moratorium, so the entire finance debt benefits from the super-priority.
The case of Arcadia brings these concerns to life. There, the original CVA proposed a cut in deficit reduction contributions by half. It was the PPF, exercising creditor rights and working with the regulator in the absence of the new super-priority, which influenced a significantly better mitigation outcome, including security over group assets, £100 million in cash and increases in deficit contributions after three years.
Again, 12% of the Pension Protection Fund’s assets, around £4 billion, come from recoveries from insolvent employers. It is a critical income stream reducing the strain on other employer levy payers. I do not believe the Government intended that the PPF would not have a seat at the table for key creditor discussions or would be denied a meaningful voice on employers’ liability to the scheme. That could not have been intended when the restructuring plan procedure can compromise creditors’ claims and standing and a cross-class claim can impose it on creditors. The restructuring plan involves court oversight and approval, but it is unclear what rights of challenge the PPF would have, what standing the regulator would have and how a pension scheme claim would be valued for voting purposes.
Changes to the Bill are needed to ensure that the moratorium and restructuring plan discussions trigger a PPF assessment period or a passing of creditor rights to the PPF giving it a seat at the table and influence to address some of the implications of unsecured finance debt being granted super-priority over the pension scheme. In the helpful briefing session the other day, the Minister advised us that the department is having discussions with the DWP and the PPF. I hope they turn out to be positive, but in Committee appropriate amendments will need to be considered.
Baroness Burt of Solihull (LD) [V]
My Lords, like my colleagues, I give an overall welcome to this legislation. I understand that the urgency of helping businesses during the pandemic and its aftermath necessitated bringing it forward now, but can the Minister assure us that the missing bits, particularly on corporate governance, will be brought forward in a timely manner? In the time available I shall pick up a couple of issues of particular concern to small businesses, and I would like to record my thanks to R3 for its assistance.
My concerns are regarding the position of suppliers, particularly small suppliers, in two respects. First, under the new essential supplies provisions, small suppliers are required to continue supplying a company which has succeeded in obtaining a moratorium. Given small suppliers’ position at the bottom of the creditor waterfall, what protections will be in place to prevent small businesses having to continue supplying an entity that may then enter an insolvency procedure? Secondly, while the moratorium is welcome, there is concern that some larger creditors may game the moratorium by scheduling large repayments during that period, thus ensuring they get paid above other, smaller creditors. I expect the Minister may receive an amendment so that only interest and charges incurred during the moratorium rather than scheduled debt repayment can be eligible for super-priority in a subsequent insolvency procedure.
However, none of the provisions in the Bill will help business in continuing to trade after the pandemic if Part 4 of the Finance Bill, which changes the order of preferential creditors on insolvency, comes into being. Small suppliers will not only find themselves at the bottom of the pecking order for payment but in all probability will find access to credit, particularly from floating charge lenders, cut off. Floating charge lenders, who lend against a changing asset, such as stock, are very important, particularly to small businesses. They came into being after the rules on preferential creditors were changed in 2002 to what they are today, so why change it back just when they are needed more than ever? Who would continue to lend if the chances of getting their money back in the event of insolvency were severely diminished?
The Government have not published a proper impact assessment or the data used to arrive at the anticipated revenue to the Treasury of £185 million, but UK Finance, the body that represents many floating charge lenders, while noting that it is difficult accurately to model the policy’s impact on business lending, estimates that the policy could hit lending by well over £1 billion per annum and possibly far more. How can this be a cost-effective measure for anyone? At the very least, can the policy be paused so that a proper impact assessment can be done or could a 12-month cap on age debts eligible for preferential status be imposed? Would the Minister consider an amendment ensuring HMRC’s preferential claim does not outrank floating charges created before December 2020?
The Minister and I have discussed this issue before, and I hope that in his response he will update the House on the outcome of discussions he has had with his colleagues in the Treasury.
Lord Vaux of Harrowden (CB) [V]
My Lords, insolvency rules are a delicate balance between giving a business the best chance of survival while protecting the position of creditors. In these difficult times, it is appropriate to move that balance a little towards the survival of the business for the greater good of the economy, so I generally support the Bill.
I want to raise two issues that relate to the protection of creditors. First, and echoing the noble Baroness, Lady Burt, the Bill prevents a much wider range of suppliers terminating a contract when a company enters the insolvency procedure. This is a permanent change. The Bill gives a temporary exemption to small companies during the current pandemic, which presumably recognises that continuing supply may be disproportionately difficult or risky for a small company, but this exemption is only temporary. This is an area where I think the Bill may have tipped the balance too far from protecting creditors. Will the Government consider a permanent exemption for at least the very smallest businesses which are most likely to be at risk in this situation?
Secondly, like several noble Lords, I want to raise pre-packs. Around one-quarter of administrations involve a pre-pack deal where the sale of all or part of a business is agreed with a purchaser, often a connected party, prior to the company being put into administration. Pre-packs can be a useful and appropriate business rescue tool, but there is a very strong perception of a lack of transparency and there are concerns that they allow directors to create so-called phoenix companies and simply dump the creditors.
In 2014, the coalition Government commissioned the Graham report. It highlighted that nearly two-thirds of pre-packs involved sales to connected parties. It said that, as well as lacking transparency, pre-packs that involve related parties often involve very limited, if any, marketing and that returns to creditors are often lower. Indeed, unsecured creditors are more likely to receive nothing in connected cases than in unconnected cases.
The Graham report recommended the creation of a pre-pack pool of experienced business people who could provide an independent opinion on whether the proposed pre-pack was reasonable. The pool was launched in 2015. Referral to the pool is purely voluntary and is initiated by the connected party. The Graham report also recognised that this voluntary approach might not work and said that, if that was the case, the Government should consider legislating. Unfortunately, the voluntary process has not worked. Only 10% of connected party pre-packs are being referred to the pool, with just 21 referrals last year. Indeed, the Pre Pack Pool oversight committee has recently written to the noble Lord, Lord Callanan, saying that it believes that the body is unsustainable unless referrals are made mandatory.
As mentioned by the noble Baroness, Lady Neville-Rolfe, the Small Business, Enterprise and Employment Act 2015 included a power to make it mandatory. That power had a five-year sunset clause, and it was allowed to elapse unused just a couple of weeks ago. According to the Times, the Insolvency Service blamed Brexit, the general elections and the pandemic for the failure to use these powers. The insolvency and restructuring trade body R3 has also expressed disappointment that no action has been taken to improve confidence in this important business rescue tool.
The Bill gives us the opportunity to fix that. It is important that we act quickly, given the unfortunate likelihood of higher numbers of companies becoming insolvent. Will the Government consider adding a clause to the Bill to make the referral of connected party pre-packs to the pool mandatory? That would be a very simple but important way of making sure that the balance between saving a business and protecting creditors is appropriate and transparent.
Lord Dobbs (Con)
My Lords, the Bill is about climbing out of lockdown and getting back to proper business. If only we could do the same in this House. This debate is not a Second Reading, not as any of us would recognise. During Second Reading of this Bill in the other place, in the physical reality of the House of Commons, there were 16 interventions on the Secretary of State. We know that that makes for better legislation and better government, yet there will be none of that today.
I am here in person simply to show that it can be done. The risks, and there are risks, can be assessed by each of us. We spend our lives assessing risks for others, so why not for ourselves? I thank all those who have worked so hard to get us this far but, without wishing to be discourteous, I say this to the usual channels: “You have struggled mightily and already achieved the very difficult. Now achieve the impossible.” We have a job to do, like every doctor, nurse, porter, police officer, teacher, tour operator and shop owner in the country, so bring us back. Keep us in business too.
And so to the Bill. I declare my interests, particularly in the hospitality and creative sectors, which are suffering terribly. Many of us are not down by 20% or 50% but are flat on our backs, so the Bill is important. It says that we do not know precisely what to expect so we must be adaptable and flexible to deal with all the unintended consequences mentioned by the noble Lord, Lord Hodgson. A 20-day moratorium is great, but for many struggling businesses will not be long enough. Ministers must be ready to consider extensions, make rapid decisions, be flexible and learn as we go if we are to succeed not simply in salvaging what we already have but in building anew. We will need to be quick on our feet.
The Bill is just a start. We will probably need to strengthen the powers of the Small Business Commissioner; simplify planning applications; make sure that invoices are paid promptly, as the noble Baroness, Lady Kramer, emphasised; clarify and probably curtail the role of many quangos; speed up decision-making; and ensure that regulators use their pencils, not simply suck them—give businesses the benefit of the doubt and free up free enterprise, in a simple phrase.
When we look back on the last few months, I suspect that we will find that British industry was more than able to provide PPE in abundance, and quickly, but we lost out because those innovative firms in the private sector simply did not fit the parameters set by Public Health England.
There is no place called “safety” right now. We will have to take a few risks along the way but the Bill seeks to strike a balance. Businesses mean jobs. Many employees fear losing their jobs right now, and understandably so. The best protection that we can give those employees is to keep their companies afloat and ensure that more new companies are floated. The Bill is a very good start.
Lord Mendelsohn (Lab) [V]
I refer to my entry in the register of interests, particularly in restructuring and distressed investments. I welcome the introduction of the Bill, which recognises the extraordinary economic stress and uncertainty by tilting the balance towards restructuring and saving companies. I thank the Minister for his openness and engagement. I am happy to support the measures, especially those that are permanent as a step towards the UK having an insolvency regime that is not just to deal with the economic consequences of the pandemic, but is part of a global process of change started off by the financial crisis.
There is much to go through in Committee on the detailed provisions, so I will outline just a few issues and constructive suggestions that I hope the Minister will address to ensure that these reforms can work to their best and quickly in practice.
The changes to the creditor-in-possession system will be a tweak in a positive direction. However, debtor-in-possession financing is the most effective form of restructuring support as it incentivises existing share- holders, creditors or sponsors to put more cash in. If financing is dependent on new players, that adds a lot of complexity. Does the Minister plan to encourage debtor-in-possession finance through registration?
Do the monitors really have to be licensed insolvency practitioners? The skill sets are not the same. Will the Government consider a suitable threshold for qualified experienced accountants from other fields, even if on a temporary basis? That would certainly help to address the issues around conflicts, cost and availability.
Revenue and Customs as a preferential creditor could adversely affect the availability of funding, especially asset-backed lending, and have a major unintended impact on credit arrangements, unless we can see some clear view of how HMRC will operate. Indeed, under the new Crown preference system HMRC could use its voice to make sure that creditors get a fair deal from post-moratorium planning. Will HMRC publish anything on how it or even the Insolvency Service might work or skill up and operate under these provisions?
Pre-packs will become a more obvious way to game the system. Their exclusion is a charter for abuse. Even prior to the more general review, will the Government consider a simple amendment to make it compulsory for pre-packs to go to the currently voluntary pre-pack panel? The opportunities to game the system are inherent in the language of the moratorium. Will the Government consider that the comparator should not be “winding up”—that is, liquidation—but should be at least as good as “going concern administration”?
The moratorium freeze on payments works well for smaller companies but does not help larger employment-heavy companies as there is no say on bank debt, high-yield bonds or complex financing arrangements. These tend to be the issues that need most restructuring. Will this be dealt with by regulation?
The regulatory framework is not addressed but it is crucial to ensure that the system operates fairly, efficiently and effectively. Can the Minister please give some assurance on what guidance will be given to the judiciary on how to use this and to practitioners on how to use the courts, and on what will be published for us to see during the passage of the Bill?
The oversight of issues around late payment, the abuse of supply contracts and other areas that deal in particular with small businesses are not adequately protected, but they could be by use of the Small Business Commissioner. Will the Government bring forward such an amendment in Committee?
Regulation is required to make sure that potential conflicts and operations of monitors have the right robust system. We cannot really rely on the old cosy world of professional bodies. Can we receive assurances about how the obvious weaknesses in regulation will be plugged and what resources will be applied to it?
Lastly, will the Government include in their regulations provisions to bring in both the Pensions Regulator and the Pension Protection Fund at an earlier stage, to be able to participate and ensure that pension schemes are properly considered?
Baroness Jones of Moulsecoomb (GP) [V]
My Lords, my concern about this Bill is the same as my concern about the Government’s wider response to the current economic crisis, which is that no thought appears to have been given to the risks of propping up failing, climate-destroying businesses. For example, the Bank of England has been giving hundreds of billions of pounds of cheap loans to oil and gas companies as part of its Covid-19 relief efforts.
Although it is essential that we support viable, positive businesses through the coronavirus crisis, the Bill completely misses the mark when it comes to addressing the much larger and longer-term climate and ecological emergency. It should make provisions that contribute to the 2050 net-zero carbon emissions target; it should contain provisions that prevent public money bailing out carbon-spewing, filthy companies and industries; and it should build a framework for managing the winding-up of planet-destroying companies, which will have no future in a net-zero world.
Trillions of pounds globally are tied up in the assets of these dirty industries, and almost everyone’s pension pot will be invested in them. Much of these companies’ value will evaporate into thin air when the necessary policies are imposed to reach a net-zero world. The Government should act now to manage this decline in a socially just way, protect pension investments, and prevent precious public funds being wasted in propping up these polluting companies, which will inevitably be consigned to the dustbin of history.
I support the points made by the noble Baronesses, Lady Neville-Rolfe, Lady Kramer and Lady Burt of Solihull, on the issue of timely payments for smaller companies, which are most vulnerable to this crisis. We need to think about how to make it easier for them to survive.
I want to pick up on a point made by the noble Lord, Lord Dobbs, with which I strongly disagree—that somehow a virtual or hybrid House of Lords is not an effective way of holding a Government to account. He cited the House of Commons, where there were many interventions. I point out that interventions are not necessarily of any use. The way that we are operating now shows a great deal of creativity on the part of the House of Lords and I hope that it will persist into the future. I would also like to point out that the noble Lord is a year older than I am and he is therefore in a vulnerable category. We should all take care and listen to government advice about staying at home.
Lord Blencathra (Con) [V]
My Lords, I have never considered my noble friend Lord Dobbs to be vulnerable to anything, but that is another matter.
I am honoured to be the chair of the Delegated Powers and Regulatory Reform Committee and we will consider the Bill tomorrow. Therefore, I cannot comment on what we might conclude but I want to inform the House that we will have a very important report to make on it, which noble Lords will wish to take into account for possible amendments in Committee. We hope to publish our report on Wednesday afternoon, so the noble Lord, Lord Stevenson of Balmacara, might wish to wait to see what we have to say. However, although I cannot say what our committee will decide, I anticipate that we might draw attention to the very large number of Henry VIII provisions—10 in the first 32 pages—and the very wide range of regulatory powers.
Speaking now in a personal capacity, I can say that I support the Bill. It is important that companies that are technically insolvent can get some breathing space to restructure, with the hope and expectation that they can carry on trading and resurrect themselves.
Although I support the need to make urgent legislation, all urgent legislation inevitably has flaws, which this House normally sorts out—if we have the time to do it. This Bill of 233 pages, one of the most complex we have ever seen, was rushed through the other place—all stages: Second Reading, Committee and Third Reading —in four hours, 45 minutes. The Committee stage to consider 47 clauses and 14 schedules took just 45 minutes. Our colleagues up the Corridor scrutinised this Bill at 12 seconds per page—surely a record. I know that we have a bit more time scheduled in this House, and the Bill must get better scrutiny than it did in the other place.
In the Explanatory Notes, the Government’s justification for all the regulation-making powers is that they might have to move at speed and do not want to bother Parliament. However, Parliament has ample time and can move at breakneck speed, as we are doing with this Bill. Emergency legislation is necessary on occasion and justifiable, and it is legitimate in this case, but that does not mean that every change in the future has to be rushed through by regulations, often using the negative procedure, when for major issues an Act of Parliament should be the norm. I agree with the important points made by my noble friend Lord Hodgson.
Finally, I am concerned about the provision in the Bill that a supplier has to continue supplying goods, with possibly no prospect of payment, to a company undergoing this procedure. If the company eventually fails, the supplier who was forced to continue supplying might not get any payment or will be behind a whole list of preferential creditors. We have all had the briefing note from R3, which says that HMRC is now legally the preferential creditor. The Government cannot have it all ways; they cannot compel a supplier to supply goods and then compel him to wait behind HMRC for payment. That is very unfair and, if I were a supplier, I would use the hardship excuse every time to cancel the contract if I was going to be stuck behind HMRC for payment.
Baroness Warwick of Undercliffe (Lab) [V]
My Lords, until recently I was a member of the board of the Pension Protection Fund—PPF—so, like my noble friend Lady Drake, I want to focus on the impact of the Bill on defined benefit pension schemes.
I recognise the intent and urgency behind the Bill. Businesses have been asked to take extraordinary measures to help control this terrible virus, and we need to ensure that viable businesses survive and get back on their feet. Defined benefit pension schemes and their members want to know that sponsoring employers will ensure that member benefits are secured over the longer term. However, there is a significant shake-up of insolvency, and some of the changes, however well intentioned, could have unintended consequences.
The PLSA and others have highlighted potentially serious consequences for underfunded DB schemes and the PPF. The PPF plays a vital role in protecting defined benefit schemes and enjoys broad cross-party support. We need to ensure that it can continue to perform the role that Parliament has given it. Some provisions in the Bill might make that difficult: they could reduce the ability of the PPF and pension schemes to have any influence in a company restructuring; they could push schemes and the PPF further down the creditor pecking order; and they could affect the amount that schemes and the PPF might otherwise receive in recoveries.
I want to focus on two things. The Bill proposes a new moratorium to provide struggling businesses with some breathing space to speak to creditors and to try to find a way to continue as a going concern. If a company becomes insolvent within 12 weeks of a moratorium ending, some pre-moratorium debts will be granted super-priority in the insolvency. At present, these are on a par with pension debts but under the proposed change they would rank above pension debts. By elevating unsecured debt finance over other unsecured creditors, there could be a serious detrimental impact on DB schemes and the PPF. It stands to reason that if some creditors get priority status and so, in the event of insolvency, get more, others will get less. Also, those with finance debts and super-priority could start to game the system, as the noble Baroness, Lady Bowles, pointed out—for example, by taking equity in a company or accelerating all debts and loans to bring them into super-priority status.
Neither the moratorium nor the restructuring plan appear to count as qualifying insolvency events, so there is no provision, as happens now, to trigger the start of a PPF assessment period or the Section 75 debt. Therefore, as my noble friend said, neither the scheme nor the PPF have a seat at the table when important discussions about the company’s future are happening. That does not seem right or fair.
This matters. There are still more than 10 million members in about 5,500 DB schemes in the UK, the majority of which are already in deficit. Recoveries from insolvent employers are a vital income stream for the PPF: 12%, or about £3.8 billion, of its current assets have come from recoveries, helping it to protect members and reduce the strain on levy payers. The change in the Bill could mean that the PPF needs to raise more levy than it would otherwise have to do from other, solvent businesses.
I believe that these issues could be remedied without a major impact on the overall intent of the Bill. To protect pension schemes and their members, the Government should not let other unsecured creditors—banks or hedge funds, for example—leapfrog up the creditor queue. They should build into the moratorium and restructuring plan appropriate safeguards to ensure that the voice of the PPF is fairly represented so that, as now, the PPF can exercise schemes’ creditor rights and represent their interests. Suggestions such as those must surely be worth considering in Committee.
I support the overall intent of the Bill but I want to make sure that it does not undermine DB schemes and the retirement funds of their members throughout the country. The Minister said at his helpful briefing yesterday when I raised this matter, “Watch this space”. I hope that that means that officials can work with the PPF and others to find solutions.
Lord Palmer of Childs Hill (LD) [V]
My Lords, a Bill to seek to deal with temporary conditions, at the same time as permanent reforms, could be a case of “legislate in haste, repent at leisure”. Is it prudent to mix permanent and temporary measures? What plans are in place for the Insolvency Service to monitor the effectiveness of this legislation?
In the current situation, the underlying problem to be prevented is a tsunami of liquidations. In the 1990s, there was such a situation. Banks realised the need to ensure that, in a liquidation, there was a co-ordinated sale of assets. Is such collaboration in place, to forestall fire-sale discounts or the mass selling of assets?
Under the Bill, an insolvency practitioner would oversee the moratorium, acting as a monitor, leaving the directors to run the business for a while. If this is not successful, a liquidator is then appointed. I would welcome details on the connection, if any, between the monitor and the liquidator, and some expansion on the questions of the noble Lord, Lord Mendelsohn, with regard to conflict.
I am concerned that, as I perceive it, the prime concern of an insolvency practitioner is his or her own fees, which are still at the top of the preferred creditors list. I also have concerns about the liability of the monitor during proceedings, as it appears to be a high-risk role. In the event that insurance becomes disproportionately expensive, or difficult to obtain, the Government should consider whether to include some limitations of liability. There are further concerns over the requirement for a monitor to obtain bonding, similar to other insolvency appointments, even though, as noble Lords will appreciate, the monitor does not control the assets of the company.
I am concerned at the changes to priority status for certain creditors, and in particular the reintroduction of HMRC’s priority status. This matter has been raised by others, including my noble friends Lady Burt and Lady Kramer. Parts of the Finance Bill 2020 undermine efforts to support businesses in the Bill before us. The proposals make HMRC a secondary preferential creditor, thus Clauses 95 and 96 of the Finance Bill should, in the light of the insolvency Bill, be withdrawn. Reintroducing HMRC preference seems to me to be pulling in the opposite direction from taxpayer support being provided by the Government at the current time to help businesses survive. This impacts on pensioners, suppliers, customers and lenders. Trade creditors and floating charge creditors could be forgiven for thinking: what has HMRC ever done for me?
There will be a substantial number of cases where a company is unlikely to be rescued as a going concern, but where part of the business can carry on and the employment it supports be sustainable, if sold off to another company through the administration and insolvency procedure. It is not clear why the moratorium should not be available in these cases.
Companies of a certain size are excluded from the moratorium, and this excludes many private companies with many employees and supply chains. Will the Minister provide further information underpinning this decision, to enable parliamentary scrutiny, or consider extending the moratorium to these companies that are not covered by this Bill?
Lord Bilimoria (CB)
My Lords, the US has had chapter 11 for years. As Secretary of State Alok Sharma said, the Government now believe that
“the package of measures that the Bill introduces will give businesses the best opportunity to survive the effects of the covid-19 crisis and lay the foundations for a bounce-back in the UK economy.”—[Official Report, Commons, 3/6/20; col. 897.]
Paul Scully, the Small Business Minister, said:
“If a restructuring plan is not agreed, it is worth remembering that the company might enter an insolvency proceeding, which would almost certainly produce a worse outcome overall for all involved. The company might stop trading altogether, which would put all employees at risk of losing their jobs.”—[Official Report, Commons, 3/6/20; col. 952.]
As the noble Lord the Minister said, businesses and practitioners of insolvency law have largely welcomed the Bill. For example, Kate Nicholls, CEO of UKHospitality, said:
“This is a very important piece of legislation from the Government … The Bill should provide businesses with some very welcome respite from aggressive landlords and valuable breathing space to restructure their businesses.”
Jennifer Marshall, a partner at Allen & Overy, said that the Bill represents
“the most significant insolvency reforms in the UK for a generation”.
The Institute of Chartered Accounts, where I am proud to be a fellow, said:
“This is a pragmatic move and a useful addition to the government’s strategy to protect employment and … will definitely help some businesses survive, but we would encourage any directors with concerns about their company to seek professional advice at the earliest opportunity.”
The provisions of the Bill on company moratoriums, termination clauses, restructuring plans, the suspension of wrongful trading regulations, dealing with statutory demands and winding-up petitions, and flexibility around AGMs and filing requirements are all very welcome. As vice-president of the CBI, I can say that it supports the measures in the Bill, with our members widely welcoming the breathing space it will provide. The retrospective application of some of the measures is particularly important as firms continue to struggle with cash flow. Matthew Fell, one of our directors, said:
“The CBI welcomes these interventions at a critical time for business. The temporary suspension of wrongful trading provisions, along with other measures, will give much needed headroom for company directors to enable otherwise viable businesses to use the government’s support package and weather this crisis.”
With the Government’s support packages tapering off in the coming months, the timely passage of this Bill will be crucial to provide headroom for management teams across the UK. For firms to understand the extent of their liability, and the options for and likelihood of avoiding insolvency and securing a rescue package, the Bill will be pivotal. At a time when firms are grappling with huge demand shocks, constrained cash flow, and an uncertain picture on domestic and international consumer demand, government support is widely welcomed.
Following the comprehensive financial support package provided by the Treasury, for which business is very grateful, this Bill will help to underpin the Government’s requirements for the next stage of our economic recovery in the coming months. We encourage the Government to ensure that businesses, and especially SMEs, which have the least capacity—I hope that the Minister agrees—have as much support as possible to retain jobs and livelihoods in the coming months.
The Minister said that the Bill is about maximising the chances of survival. It certainly helps to do that, but does he agree that, before companies have to resort to its measures, we should support them as much as possible? For example, look at the government loan guarantee scheme. We have 100% bounce-back loan schemes. The original CBIL scheme, from 23 March—two and a half months ago—has seen a 50% approval rate, to 47,000 businesses, with almost £10 billion lent. But under the bounce-back schemes, with a 100% guarantee from the Government, in just over a month £24 billion has been lent, to almost 800,000 businesses. Should not the Government consider matching what Switzerland and Germany are doing, and increase the limit for the 100% loans up to £500,000? That would help businesses, especially as measures are tapered off.
Finally, if we can reduce social distancing from two metres to one metre, that will mean four times as many people in pubs and restaurants: at two metres, there is 30% capacity; at one metre, there is 70% capacity. This could be the difference between opening or not, and between survival or not. Cinemas, theatres—everyone would be helped. France, Denmark, China, Singapore, Lithuania and Hong Kong are doing it—why are we not doing it, in line with what the WHO says? We need to get the economy back up and working as soon as possible, and safely.
Lord Hendy (Lab) [V]
My Lords, preserving companies in financial difficulties as going concerns is laudable. The workers of such companies will welcome measures that keep at bay corporate predators intent on stripping a company’s assets, thus destroying jobs. But the Bill does not eliminate the dangers to workers. Indeed, it contains no specific provisions to protect workers. Let me amplify some omissions which have been touched on by my noble friend Lord Stevenson and others.
Most fundamental is the absence of any obligation that workers and their representatives be involved in proposals for a moratorium or a restructuring—proposals likely to affect them profoundly. The Companies Act 2006 requires directors to take into account the interests of the workers, but they are not obliged to ask the workers for their views. We know that directors commonly ignore workers’ interests when a company is in financial difficulty. Often, the workers first learn that the company has gone bust on TV—well after all key decisions have been taken. The 1992 trade union Act requires consultation before redundancy, but we know that too often that does not happen, even where administrators have been appointed. It is cheaper to pay compensation than to keep the company going while consultation takes place. In the Woolworths administration, £67.8 million was paid out in compensation for failure to consult; at Comet, it was £26 million.
Another point is that those payments were not made by the companies, the directors or the administrators. They were made by the taxpayer, under legislation that requires the National Insurance Fund to pay some awards, unpaid wages and pension contributions. The burden is shifted to the taxpayer because the workers’ claims are insufficiently protected by insolvency law. It is true that the Insolvency Act 1986 confers preferred creditor status on employees in respect of some unpaid awards, wages and pension contributions. Preferred creditor status sounds good, but it ranks behind all secured creditors, including, often, the shareholders themselves, where private equity is invested by way of secured loans rather than share purchase. After the secured creditors have been paid out, often there is not enough to go around the preferred creditors. In the case of Bernard Matthews, the pension fund recovered next to nothing, while the secured creditors were paid in full. Debts owed to workers outside preferred creditor status rank at the bottom, with all other unsecured creditors. Since the company is, by definition, in financial difficulty, usually there is not enough for them. What is required is to make the benefits of this Bill contingent on the company fulfilling its obligations to their workers first. Noble friends and I will table amendments to achieve this if the Government do not.
Baroness Falkner of Margravine (Non-Afl)
My Lords, it is a huge relief to be back here in the flesh. I give an enormous vote of thanks to all those who have made it possible. I apologise to the Minister for being unable to attend his briefing session on the Bill yesterday. I am afraid that the invitation, which came late on a Friday afternoon, somehow got missed in the flow of traffic to my inbox. If I had known that it was taking place, I would very much have liked to attend.
My remarks on the Bill will be rather limited. I declare an interest as a member of the Bank of England’s enforcement decision-making committee, which is part of the PRA structure. I will thus keep my remarks to the general questions that arise in the course of the Bill. Having said that, I welcome the Bill. It is urgently needed to provide the breathing space and flexibility for firms in the current circumstances. My main concerns are with the intent versus the wording in the Bill, and perhaps the Minister can reassure me as the Bill progresses. Let me give an example from Clauses 18 and 19, which give the Secretary of State powers to amend legislation. The use of the word “procedure” in those clauses is ambiguous and appears to give
“considerable discretion to the Government”.
They are the words of the Law Society, which has provided a briefing on this Bill, for which I am very grateful.
These clauses relate to the power to amend and make changes to insolvency or governance legislation through statutory instruments, which extend to both primary and secondary legislation and are indeed very broad. I understand the need for speed, but the nature of these decisions will depend on a number of unknowable factors. If the idea is to give protection to businesses that would be viable but for the effect of the pandemic, as the Explanatory Notes put it, that raises questions about viability and determining it, and the confidence that stakeholders can have in assessing that viability. Then there is the issue of temporary changes to the overall insolvency regime and how long they might last, as well as the method of their review.
Turning to the moratorium and the rule and powers of the monitor, while necessary at a time of economic stress, there is the risk that the moratorium might be overemployed by firms as a shield from creditor obligations. The results of the question about how many companies might seek this route makes me fear that there are inadequate safeguards in place to prevent them exploiting it. The Law Society’s suggestion is that there should be a simple test with clear qualifying criteria for firms employing this avenue to buy time. Have the Government had conversations with the Law Society about its concerns?
There is no maximum period for the moratorium, nor any limit to the number of extensions. My concern is that the ability of directors to seek extensions from the court, and the Bill’s lack of a maximum number of extensions, may constrain creditor rights, as many other noble Lords have put it. Is there not a real possibility that the directors of a company start in the hope that the business is saleable, but do not quite get that their financial position might be worsening? Does the relative unpredictability of the outcomes that this power allows not disadvantage creditors, particularly those small creditors that so many noble Lords have spoken about?
Should there not be an overall time limit for extensions by the court without creditor consent? There also seem to be insufficient safeguards regarding the appointment of the monitor or additional monitors, or indeed, their duties. Other than professional qualifications, there are no statutory requirements for the monitor to be independent of the directors of the company who make their appointment. When directors decide on a replacement or additional appointment, they do not have to explain to the court why a replacement is being made.
On the face of it, the rules of the court are too limited, but the role of the monitor is potentially too cosy in terms of relations with the directors, and the provisions of creditor rights are too weak. There is much in the Bill to commend but, given the haste with which it has been fast-tracked, much to worry about in terms of the exploitation of well-meaning legislation that may prove to have been inadequately thought through.
Baroness Anelay of St Johns (Con) [V]
My Lords, I am grateful to my noble friend the Minister and his officials for their online briefing yesterday. I shall focus my remarks on the economic impact of the pandemic on the voluntary and charitable sectors, and the potential for the Bill to assist them to continue to operate effectively.
The National Council for Voluntary Organisations gave evidence to the DCMS Select Committee in the House of Commons last month. NCVO estimates that charities will lose approximately £4 billion in projected income in the three months from March this year. Age UK, for example, reported that the closure of its 400 charity shops resulted in the loss of one-third of its income overnight. Some charities have reserves that can be drawn upon, but only marginally in most cases. When drafting this legislation, what meetings did Ministers or officials have with representatives of the charitable sector to take their concerns into account?
Last week, I was able to benefit from a webinar on the Bill, which was set up for the charity sector and hosted by the NCVO, in association with Bates Wells solicitors. I shall draw upon the questions raised during that webinar and seek clarification from the Minister today.
The Bill provides to companies, including charitable companies, temporary easements on company filing requirements and requirements relating to meetings, including AGMs. It is welcome that the Bill permits a period of flexibility for members’ meetings in the period 26 March to 30 September. It is also welcome that the flexibility in the Bill allows a charity to do things, even if those things are not permitted by their own governing document. The particular issue on which charities have found difficulty is holding AGMs in accordance with their governing document. They cannot convene an in-person meeting with any guarantee either that they could secure a quorum in the timeframe allowed for holding their AGM or that they could ensure access that is fair to all.
Schedule 14 sets out some provisions on the holding of meetings, and appears to suggest that a quorum can be formed by an entirely virtual meeting. Can the Minister confirm that is the case? Can my noble friend also confirm that, if an organisation has already held its AGM virtually or in hybrid form, even though its rules do not permit that format, the Bill will ensure that the meeting is deemed valid retrospectively? Can my noble friend also clarify the correct way to record the place of a virtual meeting? Is it the location of the chair or the name of the IT platform, such as Zoom or Microsoft Teams?
Finally, I would be grateful if the Minister would clarify exactly which type of charity will benefit from this greater flexibility. Does the Bill cover only charitable incorporated organisations and community benefit societies? If so, it would exclude help to all those charitable and voluntary bodies that have been set up by an Act of Parliament or charter. Have the Government had discussions with such organisations to see what further assistance could be offered to them? Have they also discussed this with the Charity Commission to see what assistance it might provide? I look forward to the Minister’s response today.
Baroness Blower (Lab) [V]
My Lords, I have no specific interests to declare in the context of the debate, but I declare one as a lifelong trade unionist. As such, I always look at proposals from any Government in the light of how they will impact on employees and workers. There is, I am sure, a widespread fear that in the aftermath of the pandemic there is likely to be wide-scale job loss and the prospect of not a little unemployment. This prospect must focus our minds on what can be done to avoid or alleviate it.
The pandemic has brought into sharp focus the significant levels of inequality in this country. Many more people are now aware of just how little others had to live on before the pandemic, and many will look for a better and more equal society in post-Covid Britain, as well as globally. If we are to see a fairer Britain, it will be ushered in by ensuring that employees and workers have well-respected legal rights.
On the surface, this Bill is about rescuing financially distressed companies; I think we can agree that there may be a number of them. We can also agree that maintaining companies so as to maintain jobs is an important objective. However, what potentially may be enabled through the Bill’s proposed company restructuring is a situation in which companies restructure their liabilities while remaining in business, with the impact of such restructuring falling very heavily on the workforce—perhaps in particular on employees’ pensions. Can the Minister clarify what recourse an ongoing restructured business would have to the Pension Protection Fund?
Further, can the Minister explain the lack of intention in the Bill’s proposals to limit in any way executive pay and bonuses, even for a specified period? Nowhere in the Bill is there even a nod in the direction of the need to consult the workforce, much less engage in meaningful negotiations. If this legislation is in part modelled on Chapter 11, as it is popularly known in the United States, it may open the door to what has been seen in some companies in the US: the strategic use of insolvency as a means of jettisoning previously agreed collective bargaining arrangements in order to depress wages, conditions and pensions.
There is an opportunity in the Bill to legislate for the requirement to consult the workforce in any company that is genuinely facing difficulty. This would indicate a desire that restructuring should not be used in an unreasonable strategic fashion. The much-vaunted agenda of levelling up will ring hollow if legislation is not seen to take into account the voices of workers in their own futures. I congratulate the noble Lord, Lord Balfe, on his remarks in this regard and his recognition of pensions as deferred wages.
I trust that the Minister will consider favourably amendments that will be brought forward from these Benches to remedy the lacunae in the Bill.
Baroness McIntosh of Pickering (Con) [V]
My Lords, I congratulate my noble friend on introducing the Bill. I welcome the thrust of the Bill—bringing forward measures to support company rescue—particularly in the current circumstances of the Covid-19 pandemic and its dreadful impact on business.
Although I overwhelmingly support the Bill, I will raise a number of issues, particularly as regards the role of the monitor and areas where it may be vague and uncertain as to how provisions will apply in practice. I will take the opportunity to ask the Minister: for what reason have individual insolvencies been excluded from the scope of the Bill? Can he clarify the Government’s position regarding the monitor? How independent will that person be of the company and its directors?
More specifically, will the Government look more closely at the role of the monitor and consider introducing further safeguards to ensure their independence? In particular, could he look at the appointment and duties of the monitor? Should they outline and introduce a statement of how they understand the company intends to use the moratorium to rescue the company? Should the monitor be asked to provide a progress report? Should they be required to file any relevant correspondence between the company directors and the monitor with the court? Finally, would it be appropriate for the monitor to submit a statement of their independence from the company, with a test of that independence?
In spite of these comments, I wish the Bill a fair wind and would be grateful if the Minister could explain, particularly regarding its permanent measures, the monitor’s role in reducing financial distress of companies with the introduction of a moratorium.
Baroness Northover (LD) [V]
My Lords, I commend the Government on the range of measures they have taken to try to ensure that viable businesses do not go under in this pandemic, and that individuals are able to retain their jobs. Nevertheless, as my noble friends and others have made plain, these proposals have been put forward at speed, and in such circumstances there can be unintended consequences. The Bill was rushed through the Commons but already in this Second Reading noble Lords have flagged a range of important questions, not least distinguishing proposals which relate to this crisis and those intended to have long-term effect.
One very troubling feature of the pandemic is the evidence that better-off firms are taking advantage of the Government’s crisis measures. These firms may have every legal right to do so, but that does not mean that this was what the schemes were intended for. We can see this in the take-up of loans. Thus, as the Times put it on Friday 5 June, “Billionaires and global giants” have taken almost £17 billion in “cut-priced” loans. JCB, owned by the billionaire Bamford family, has taken £600 million.
Governments and central banks have been quick to provide support across the world. In the United Kingdom, the top 10%, who own 47% of private pension wealth and 66% of financial wealth, look to have been almost entirely protected from the downside of this crisis. Some 120 companies among the FTSE 350 are now higher than they were before the crisis. Asset owners have potentially been bailed out, giving firms an opportunity to lay off employees and make cost savings in a way that would normally be impossible. Inequality looks set to escalate.
The Government may intend the best by schemes such as the proposals being examined here, but the more resilient may be better able to take advantage of such measures. My questions are therefore about accountability. What impact assessment have the Government made of the proposed changes? What scrutiny will be brought to bear on companies? Even AGMs can be online. How will companies be held to account, either by those closely associated with them, or by the Government? What protection can be put in place to ensure that companies do not use these temporary arrangements to sack employees or to reduce their rights, especially their pension rights, as the noble Baroness, Lady Drake, and other noble Lords have emphasised?
Like the noble Lord, Lord Hodgson, I recall the very constructive cross-party debates over what became the Companies Act 2006. My concern as a DfiD spokesperson at that time was in regard to corporate social responsibility, particularly as regards environmental impacts and supply chains in developing countries. Can the Minister tell me what consideration has been given to such aspects of corporate social responsibility? Supply chains in developing countries are under huge pressure, as he will know. Will we see rigorous corporate reporting and a requirement to build environmental, social and governance principles into the decisions made by companies covered in this legislation? I look forward to the Minister’s response.
Lord Hunt of Wirral (Con) [V]
My Lords, I draw attention to my interests as set out in the register. I strongly welcome the Bill and wish it a safe passage, for it is timely, practical and much needed. The principal legislation in this field is of course the Insolvency Act 1986 but it has already been substantially amended by the Enterprise Act 2002. When that Enterprise Bill arrived in the House of Lords, our late and much-missed colleague Baroness Miller of Hendon said:
“Perhaps a measure along the lines of the American Chapter 11, which has given many ailing companies a breathing space to recover from a temporary setback, is needed.”—[Official Report, 2/7/02; col. 147.]
As colleagues will know, I have advocated a similar approach for many years.
Chapter 11 of the United States Bankruptcy Code, as mentioned by the noble Baroness, Lady Blower, a few moments ago, enables a struggling company to stabilise itself by a number of means, including: renegotiating union and retiree obligations; authorising loans; and the rejection of executory contracts. In replacing Schedule 1 to the 1986 Act, the Enterprise Act 2002 went some way in a similar direction by introducing a new responsibility for an administrator of
“rescuing the company as a going concern.”
I believe it is vital we should go with the grain of what we already know to work, here and abroad. We must also, despite the necessary alacrity, ensure that this Bill is fit for purpose.
In another place my own Member of Parliament, Stephen Hammond, raised a very valid concern about new Section A6(1)(e) of the Insolvency Act 1986 and I reiterate his point. Consideration of a struggling concern necessarily involves high-pressure and speedy consideration of the relevant facts—not unlike the passage of this legislation—so we must take care to get the thresholds right. That new section contains proposed criteria for “relevant documents” that a company might file with the court in seeking a moratorium. One would be a statement from the new monitor, to the effect that
“in the … monitor’s view, it is likely that a moratorium for the company would result in the rescue of the company as a going concern.”
I suggest this might risk setting the qualifying threshold rather high. If the principle behind the Bill is to give every firm that might survive the crisis an opportunity to recover and consolidate, should not this legislation say just that; in other words, might not “would” in that new section be more effectively replaced with “could”?
I am also concerned that a monitor who is an insolvency practitioner might potentially have a perceived conflict of interest, unless the legislation states explicitly that they may not be appointed as administrator or liquidator if the rescue plan fails. I have had considerable involvement with the credit union sector and am concerned that the proposed moratorium will not apply there. Perhaps my noble friend the Minister might provide a few words of reassurance. These may be details but they go to the very heart of the legislation and the admirable motivating principles behind the Bill, which I so strongly support.
Lord Thomas of Cwmgiedd (CB) [V]
I draw attention to my interests as set out in the register. I thank the Minister for his clear exposition of the Bill, and in particular thank the officials of his department in the Insolvency Service for their close consultation with the judiciary. It is important to recall that the judiciary will have the job of making the Bill work when it becomes law, and will have to deal with the additional burdens that it plainly will place upon them. The co-operation that seems to have occurred is an admirable example of what should be done between government and judiciary, each acting within their respective spheres and respecting their respective roles.
My second point relates to the realism with which we must approach the Bill. It is, obviously, urgently needed. It is not going to be easy at all, given the current circumstances, to look at amending or clarifying the many provisions about which concern has been raised, both in this debate and outside, such as those relating to priorities, definitions, exemptions, the role and qualification of monitors and what they are to be allowed and not allowed to do; and to the question of the exit from the emergency provisions or their extension. There is also the obvious risk of error in a Bill that is necessarily being taken through at such speed. Therefore, perhaps unusually, I welcome the provisions in the Bill to permit changes by regulation. For example, on page 11, which inserts new Section A18 into the Insolvency Act, there is a very useful power to change the debts that are to be exempted. Can the Minister say whether there are sufficient powers by way of regulation, with the appropriate safeguards, to enable changes that may need to be made at great speed to be accommodated, bearing in mind the heavy legislative load that will be before Parliament over the coming months? We must realistically look at this, and of course we would welcome the views of the Delegated Legislation Committee.
Finally, I welcome Chapter 11, or the UK equivalent of that. As this is a longer-term form, is sufficient time being allowed for the introduction of that, bearing in mind all the other matters that those who have to deal with this legislation will also have to address?
Viscount Trenchard (Con)
My Lords, I thank my noble friend for introducing this Second Reading debate today with his usual clear and methodical approach. While declaring my interests as stated in the register, I am delighted to be able to speak from these Benches and believe it is important that we should revert as soon as possible to something nearer our normal ways of working, as the House of Commons has done. It may well be that the noble Baroness, Lady Jones of Moulsecoomb, and her noble friend have ample opportunities to hold the Government to account under this system, but I feel myself persuaded by my noble friend Lord Dobbs, who, employing his natural eloquence, made the case for our proper return very well.
The Bill seeks to address the perceived failings in our current arrangements. I was surprised to note that the UK languishes at 14th place in the World Bank corporate insolvency rankings, below, inter alia, Slovenia and Iceland. Japan, Finland and the US occupy the top three positions. As noble Lords will be aware, the Government intend to negotiate free trade agreements with Japan and the US this year, and it would be good if the UK’s ranking in the World Bank’s table in future approximated more closely to theirs.
I believe that the permanent measures included in the Bill should assist in achieving that. They enjoy the broad support of the legal profession, and the reforms on moratoriums, restructuring plans and termination clauses have been worked on for some time. I hope that the Minister will commit that the Government will review the new insolvency and restructuring arrangements within, say, three years, and make sure that they are working as well as intended. The justification for the fast-tracking of this Bill, however, is driven by the temporary provisions on wrongful trading and winding-up petitions. They are also retrospective in effect, which we rightly normally avoid in this country. I believe that noble Lords will applaud the Government’s intention, which is to support businesses which were viable immediately prior to the realisation of the onset of the Covid-19 pandemic, but whose future is now seriously threatened, especially companies operating in the entertainment and leisure sectors.
The Government have introduced several schemes to provide immediate financial relief to companies suffering from the effects of the pandemic, and those eligible to receive loans will be much less likely to need to avail themselves of the protections provided by this Bill. What progress are the Government making in persuading the European Commission to change its definition of “undertaking in difficulty” to permit companies financed through their growth period by shareholder loans to borrow, or to resolve to apply a better definition of viable companies? My understanding is that not all member states are as diligent as we are in applying the Commission’s definition, even though we are supposed to have left the EU. Creditors’ rights to make winding-up petitions are curtailed by the need to satisfy the coronavirus test. It is not clear whether this will lead to a view that “it just isn’t worth bringing a winding-up petition, so don’t bother because you will fail” or whether people will seek to use and satisfy the coronavirus test to bring petitions that might not otherwise have been brought. It is interesting that judges have already started to grant injunctions to restrain creditors from proceeding with winding-up petitions in cases where the Bill, once enacted, would mean that the petition was dismissed when heard because it would fail the test.
With this Bill, the Government add some useful tools to the toolbox without interfering too much with well-established principles. I welcome the Bill and trust that your Lordships’ House will support my noble friend in securing its enactment without undue delay.
Lord Hain (Lab) [V]
My Lords, with half a million businesses at risk of going under this year because of the Covid-19 crisis, the need for this Bill to try to provide new options for company rescue will be accepted across the House. However, there is a risk of pushing this problem off to tomorrow. There should, for example, be a second wave of support for viable businesses threatened through no fault of their own. Although there will be a further cost to the Treasury, it will be far less than the cost of doing nothing.
There should also be greater protection for consumers where businesses go bust, to protect and strengthen consumer rights, particularly given the terrible impact of the crisis on the travel, hospitality and retail sectors. It is crucial that distressed companies conserve their cash flow to improve their chances of survival, rather than squander it on high dividends, share buy-backs or executive bonus payments. There is scope further to strengthen the protections of the moratorium by providing a payment holiday on loans and by broadening the scope of eligible companies.
On the new restructuring plan, the proposed threshold requiring the support of 75% by value of the members of a class is in line neither with the Chapter 11 plan of reorganisation nor with the new Dutch plan. The proposed higher threshold could enable a small minority of the members of the class to stymie the wishes of the majority. Changing this threshold would facilitate restructurings and ensure that the new restructuring plan was best placed to maximise value for stakeholders.
On the restrictions on winding-up petitions, the protection for debtors is far reaching and there needs to be a presumption in favour of the creditor’s position where the company has failed to engage in good faith with reasonable requests for relevant information. This is necessary to ensure that supply chains do not collapse due to debtors abusing their position and not paying creditors, leading to creditors themselves becoming debtors in a downward spiral to financial disaster.
The Government are right to amend the rules to help businesses showing signs of financial distress to survive through the crisis, but they must not do so by removing essential protections for creditors and employees. The Government should introduce further protections for smaller unsecured creditors, who are often employees and smaller SMEs, including through the ring-fencing for them of proceeds of the sale of assets.
I will be joining my noble friend Lord Hendy, who spoke so powerfully earlier, my noble friend Lord Monks and others to move amendments in Committee next week to put in place protections for employees over their pension rights, on which my noble friends Lady Drake and Lady Warwick spoke in ominous but authoritative terms, as well as protections on pay and national insurance contributions, and on gender balance compliance with the Equality Act 2010. But the catastrophic hit on manufacturing—including flagship companies such as Rolls-Royce, Airbus and Jaguar Land Rover—has again starkly exposed the Government’s complete lack of any serious or active industrial policy. Britain’s smaller businesses need a source of modest equity capital and long-term lending, like the KfW in Germany and the Small Business Administration in the United States. Now is the time to plug that gap.
Lord Bourne of Aberystwyth (Con) [V]
My Lords, I thank my noble friend the Minister for very clearly and fairly setting out the Bill’s scope. It is a mixture of scheduled insolvency reform, which has been waiting for some time, as well as some urgent mitigation measures relating to the present crisis. Like other noble Lords who participated in the debate, I recognise that there is a much wider issue in looking at the political economy questions that the country will face as we come out of the crisis, but I will confine myself to the Bill we have at the moment.
I will first say something about the moratorium provisions, which, as I said, were very much on the stocks anyway and have been brought forward. This is in the vanguard of the first significant reform of insolvency law since those that enacted the Cork committee recommendations in the 1980s. I welcome them, but I have two significant concerns. The first relates to the seemingly open-ended nature of repeated moratoria, or at least an extension of the single moratorium, into the future ad infinitum. I would welcome the Minister’s reassurance that that is not envisaged and on how it can be prevented.
My second significant concern has been mentioned by others, such as my noble friends Lady McIntosh of Pickering and Lord Hunt of Wirral, and relates to the role of the monitor. We need to ensure that the monitor, although an insolvency practitioner as required under the Bill, is independent of the company. I would welcome the Minister’s reassurance that that will be the case.
I turn briefly to the wrongful trading provisions. I agree very much with the comments of the noble and learned Lord, Lord Hope. The Minister spoke of this as a suspension of wrongful trading. As drafted, it is not; it is a mitigation of wrongful trading because it allows for an assumption of the directors acting in relation to trading, rather than ensuring that it is not the case. In other words, as it stands it is rebuttable, not an actual suspension. I do not know whether that is the intention that needs to be looked at.
I very much welcome what is being done on company meetings. I would have provided for this on a long-term and indefinite, rather than limited, basis, allowing what is the position of common law: for meetings to be held remotely. The case of Byng v London Life Association in the 1990s established that the essence of an effective meeting is the ability to interact and participate, rather than physical presence one with another—something that I am sure we all recognise at the moment as being the way we are proceeding. Like my noble friend Lady Anelay, I would welcome an assurance that these provisions relate to all sorts of meetings. There is a fairly exhaustive list in the Bill, but I do not know whether it is totally exhaustive. It might be wise to provide a catch-all provision, or at least to allow the Secretary of State the power to extend it to other bodies. It seemingly covers trade unions, charities and so on, but it might be that something has been unintentionally missed out.
Subject to that, the provisions relating to meetings are very much to be welcomed. In broad terms, the Bill is something we should support and I certainly do so.
Lord Leigh of Hurley (Con) [V]
My Lords, I refer to my registered interests. I welcome the Bill, which contains many measures I called for the Government to enact in our Budget debate in this House on 18 March, when it was becoming clear that urgent action was required on insolvency. I thank the Minister and his officials for taking time to meet me and Jon Moulton regarding this Bill, following my interventions on Part 10 of the then Small Business, Enterprise and Employment Bill in earlier years. Given the time restrictions, I will make a few overall comments which impact on the core of the Bill, which, although a very commendable piece of legislation, has for reasons we all understand had to be rushed through Parliament.
First, can we all agree that the prime objective is to save businesses and jobs? This is not the same as saving companies. The actual Ltd or plc companies which could get into trouble are not important here. If they go into the moratorium, most will certainly fail; the weak ones will not even be able to go into it because of the restrictions. However, the businesses of those companies and the jobs pertaining to them might well be saved, and the Bill as currently drafted does not really differentiate between the two. I am told that when the Enterprise Bill was being debated in 2002, many MPs—though I am sure not my noble friend Lord Hunt—could at times not really appreciate the difference between a company and an enterprise. Let us not make that mistake again, because it is crucial.
Secondly, there is no proper US Chapter 11-type proposal in this Bill. I appreciate that the Government are not yet ready to promote this route, but there has not been a proper, informed debate on whether it is a good idea. There are literally trillions of dollars globally looking for a place to invest right now. Perhaps we should allow debtor in possession-type financing so that rescue finance, of course under court approval, could provide an essential lifeline to viable businesses. It must rank at the top of the waterfall and be obtained very early, with some protection for people such as super-senior lenders and others. If there were ever a moment to promote a rescue financing scheme in the UK, this is it.
My last major issue concerns companies that have issued traded bonds of over £10 billion. Under the Bill, they are not eligible for the moratorium. It is important that large companies should be able to access the new proposals. Would my noble friend the Minister reconsider this point? The argument against advancing one of these in the past has been that they do not want to interfere with the proper functioning of the market—a very laudable reason—but when large companies restructure there is often a de facto moratorium. The current drafting catches companies with common security structures and makes them ineligible. This cannot have been the Government’s intention, which is for the moratorium to apply to all companies except financial ones, so let us have the drafting make sure that only financial companies are excluded.
Before I virtually sit down, I have two requests on matters not in the Bill. First, have the Government considered whether it is healthy that the same firm of accountants can be appointed by the bankers to determine the state of a company’s finances and then subsequently be appointed as the administrator or liquidator? I have raised this before; the phrase has been used that it is a bit like seeking medical advice from the undertaker. It is not right and should be stopped. Secondly, I add my voice for the Government to reconsider the Finance Bill’s provisions; making HMRC a preferential creditor right now could be a hammer-blow to businesses, rescue and lending across the UK.
Baroness Bryan of Partick (Lab) [V]
My Lords, Covid-19 has made people more aware of the effects that changes in working practices have had on many workers. It is not long ago that the gig economy and zero-hours contracts were defended on the basis that some workers benefited from not having guaranteed hours or being able to plan and budget for rent, food and other expenses. The vast majority of workers know that there is no substitute for a job with a proper contract, holiday pay, sick pay, maternity and paternity pay, and, at the end, a good pension.
This pandemic has made many people even more conscious of how important these things are. There have been any number of scandals involving insolvency by unscrupulous employers playing fast and loose with pensions, which, as has been said, are workers’ deferred earnings.
Can the Minister assure the House that the Government have learned from those high-profile cases and that they recognise that those who suffer most from insolvency are the employees?
Following the collapse of Thomas Cook, many workers, sometimes more than one in the same family, not only lost their wages and long-saved-for pensions but struggled to pay rent and mortgages, putting their homes at risk. These uncertainties increase the likelihood of marriages breaking up and other social, physical and mental health problems. The Bill makes one think that the Government have not learned the lessons about insolvency from the failures of Carillion, BHS and all the others. If they had, they would have included employee representatives in the discussions around insolvency and would have amended regulations so that pension schemes were among the secured creditors.
Another concern about the Bill is that it may not prevent a restructuring plan being used to undermine workers’ terms and conditions. We should be concerned that the legislation has been compared to chapter 11 in the United States. I am more worried than some Peers that this could allow employers to end agreements with trade unions, sack workers, and rehire them on lower wages and poorer working conditions.
Many people hope that some good will come out of this pandemic. They hope that we will do things differently, that our society can be fairer and more equal, and that people’s lives can be made more secure. We must of course welcome the aim of keeping companies in business in such difficult times, but this needs to be done with the co-operation of the workforce. This can happen only if employees feel properly valued. As the Bill stands, it is business as usual. I hope that the Minister recognises that that is not good enough and will consider adopting some of the amendments that will greatly improve the legislation.
Lord Naseby (Con)
My Lords, I greatly welcome the Bill and should like to lodge a particular thank you to the Minister and the Chancellor of the Exchequer for the depth of their understanding of the challenge in front of our businesses and commerce. I also associate myself with the words of my noble friend Lord Dobbs. Hybridity is very much a halfway House. Just one Member of the Official Opposition, one Member of the Liberal Democrats and one Member of the Cross Benches are here. This would never have happened in any of the previous 46 years in which I have been across the two Houses. It does not really work for any major Bill such as this. At the same time, every business in the land is having to adjust. They have to do it. We should move faster to adjust in this House.
Look at the challenges. One has only to look at yesterday’s newspapers, with stories such as the boss of Lloyds urging the state to take charge of Covid debt, or the warning from the chief of Heathrow that 25,000 jobs are at risk—let alone the people who are dependent on Heathrow. These are huge numbers of people in difficulty.
I had the privilege of speaking on Second Reading of the Coronavirus Bill. I raised three issues. First, the Prime Minister said that we would take action to save the NHS and save lives, and I suggested that the economy should be added to that. Secondly, I suggested that Winston Churchill had Lord Beaverbrook to help him, and a little later on some help came from one of our colleagues to help with PPE. Thirdly, I asked about testing and the WHO recommendation to “Test, test, test”. Rather late in the day, we started on that front.
It is disappointing that SAGE does not have a senior economist to be called on; there is no Keynes in SAGE at the moment. On top of that, we have two further hindrances. The first is the two-metre rule—a huge hindrance. Right at the beginning the WHO said that one metre was enough, and France, Singapore and others have followed. Even if we rely on the science, why, with great respect, do the Government not read the latest issue of the Lancet, which proves almost beyond doubt that the differences between the two are minute?
I know the WHO from personal experience. At the time of the tsunami in 2004, Her Majesty’s Government said that fish were eating the dead bodies of the people who had drowned. I challenged that; I am married to a doctor and my eldest son is a doctor, and the three of us got hold of the WHO and asked it to rule on it. The WHO said there was no evidence at all for it, and the advice from the British Government was withdrawn.
What on earth are we doing on quarantine for travel? We know, and the Government have admitted, that the effect on the virus is marginal, but it has a massive effect on the airlines, the travel industry and indeed our exporters.
The Bill is important. I just think that there are two practical areas that should be considered. One has been raised by my dear and noble friend Lord Hunt of Wirral: “could” should be substituted for “would” when we are talking about the moratorium, and I hope the Government will have a look at that. The other is the repositioning of where HMRC comes in the list of creditors. It seems to me that the change suggested there will adversely affect floating-charge creditors and unsecured creditors.
Having said all that, I wish the Bill a fair passage, and once again thank my noble friend the Minister for all the work that he and his team have put into it.
Baroness Barker (LD) [V]
My Lords, I wish to address the different types of company that will be impacted by the legislation but about which there is little in the Bill. There are 43 building societies and 27 friendly societies registered under the Friendly Societies Act 1992, some 9,000 registered under the Friendly Societies Act 1974, co-ops, mutual benefit societies and credit unions, all of which have binding rules with regard to the holding of their AGMs—plus 22,000 charitable incorporated organisations, as well as 4,500 more in Scotland. While the temporary provisions of the Bill, such as the relaxation on the holding of AGMs and some types of filing, are welcome, the permanent provisions should have been subject to greater scrutiny than is possible in three short days, and including them in the Bill is opportunistic of the Government.
I want to look at Clause 10, containing the new arrangements regarding wrongful trading. Many charities that may be constituted as companies limited by guarantee or charities that are beneficiaries of wholly owned trading companies have not been eligible for the furlough scheme or CBILS. The sector has lost £4 billion in the 12 weeks from April to June. Charities on average hold reserves of between three and six months’ expenditure, and charities that are active in the area of arts and sports, even if they are open soon, are unlikely to generate income at pre-Covid levels. For all of them, Clause 10 will be most important from July until the end of 2020. I therefore ask the Government whether they will think now about changing the timescale for Clause 10.
The main proposals that apply to CIOs are in paragraphs 43 to 49 of Schedule 3. Paragraphs 58 and 59 enable regulations to be made to apply the moratorium provisions to co-operatives and community benefit societies, while paragraph 54 alters the definition of “insolvency” in the Insolvency Act 1986 as it applies to organisations of those types. What do the Government intend to include in those regulations? When will they be published? When will CIOs, mutuals and co-ops know how the regulations will apply to their businesses? Have the Charity Commission, Companies House and the CIC regulator been involved in the drawing up of the regulations that apply to these companies?
Could the Minister explain the exemptions for registered social landlords? Given the potential rise in extensive homelessness, that is very important. Have local authorities been involved in the discussions about those companies?
In their initial handling of Covid, the Government made a fundamental mistake in March by putting in place measures that treated all companies the same. They are not. These companies are different; they are subject to different tax regimes and different laws. The Bill must not compound the problems that are currently in danger of putting thousands of charities and social enterprises out of business. Will the Minister agree to meet representatives of charities and social enterprises before the Bill reaches its next stage? For once this sector should be at the forefront, not the end, of the Government’s considerations.
The Deputy Speaker (Baroness Garden of Frognal) (LD)
I understand that the noble Baroness, Lady Kennedy of Cradley, will no longer be speaking in this debate. I therefore call Lord Flight.
Lord Flight (Con)
My Lords, I first draw attention to my entry in the register as chairman of Flight and Partners, which is a recovery fund.
The Government’s intentions for this Bill are well meant and are to help businesses survive. My concern is that its impact could be substantially contrarian and would damage, in particular, the SME sector. The Bill is being fast-tracked through Parliament with the consultation process being crammed into six weeks. Temporary measures in response to the crisis can be amended, but the worry is over the more complicated, permanent parts of this legislation.
The main measure is the new company moratorium, which gives a 20-day moratorium from anyone bringing an action and which can be extended by a further 20 days. We already have the notice of intention where directors can put down a notice of their intention to appoint an administrator. This needs the agreement of secured creditors and protects the company from any creditor issuing a winding-up provision. The NoI lasts for 14 days and can be extended. It has worked well in the SME space, the key being that it involves the secured creditor. The Bill’s moratorium procedure has no such requirement. While the bank’s security cannot be removed and it would have the legal right to enforce its security post the moratorium, to exclude the key stakeholder from the company’s strategic decisions is surely mistaken.
The impact of the Bill will be to increase the risk to lenders. Not allowing lenders any involvement in the moratorium will discourage lenders to this sector, where one of the reasons for their willingness to lend to date has been the ability to act quickly if borrowers are starting to breach covenants. There needs to be a carve-out for SME companies, perhaps using the EU definition of an SME: fewer than 250 employees, turnover less than €50 million and the balance sheet below €43 million. This would mean that banks could safely continue to lend to SMEs, knowing that the moratorium would be available only to larger companies. Without this, the Bill will have a major impact on lending to the SME sector at a time when it is most needed.
There is currently little wrong with the UK’s SME insolvency restructuring culture, and the comfort it gives to lenders delivers a vibrant lending culture. I am sure it was not intended that this legislation would damage this thriving part of our economy. It is invariably the case that more businesses fall into insolvency coming out of a recession than going into one, which is all the more relevant today with the enormous help provided by the Government.
The permanent changes to the moratorium and restructuring plan included in the Bill will stifle the ability to borrow in the SME sector and will result in more insolvencies. I urge the Government at least to consider the suggested carve-out for SMEs.
Baroness Ritchie of Downpatrick (Non-Afl) [V]
My Lords, I welcome the opportunity to make a contribution to the Second Reading of this Bill. Like previous noble Lords who have spoken, I feel that the provisions in the Bill will undoubtedly protect companies in the execution of their corporate responsibilities during and post this pandemic.
Undoubtedly, the coronavirus pandemic, along with Brexit, has caused uncertainty for many companies. I will give examples from Northern Ireland. The aviation and aerospace industry has suffered a shock. There have been job losses in Thompson Aero Seating, which manufactures seats for aircraft, and in Bombardier, a multinational company, and those job losses have a direct impact on the aviation industry. Ulster Bank published its survey this week, as it has done on a monthly basis since August 2002, and the state of the local economy was the worst it had reported since then. There has been a slight increase in performance since April, but the report shows that the lockdown has caused many problems. So I hope that the Bill will provide the necessary resilience and strength to our businesses as they execute their corporate responsibilities.
Last week, the Northern Ireland Assembly gave legislative consent to the Bill. But it raised two issues—which I too will raise—on behalf of the Irish League of Credit Unions and Enterprise Northern Ireland. The noble Baroness, Lady Anelay, referred to charitable institutions. The Irish League of Credit Unions is a charitable institution, but it has some technical issues. Neither organisation was consulted prior to this, so what level of consultation took place preceding the accelerated passage of this legislation?
Schedule 14 to the Bill applies to meetings held between 26 March and 30 September 2020. The year end for credit union accounting purposes in Northern Ireland is 30 September. Under the standard rules for credit unions, organisations affiliated to the Irish League must hold their general meetings within four months of 30 September—that is, by the end of January 2021. Traditionally, most local credit union AGMs are held in November and December, so the Irish League of Credit Unions would very much like to have a resolution to this issue. Enterprise Northern Ireland has suggested that the period proposed in the Bill to present the presentation of winding-up petitions should be extended to cover cases where a statutory demand is served between 1 March and 31 October.
I would very much like the noble Lord to provide me with answers on those two issues. If he is not able to do so today, perhaps he would provide them to me in writing at a later stage. These issues go very much to the heart of the Bill. Although no company has any particular objection to fulfilling its corporate responsibilities, it wants to have the necessary resilience to execute business, to provide jobs and employment, and to provide the impetus that the local economy requires.
The Earl of Shrewsbury (Con) [V]
My Lords, I declare an interest as a former deputy chairman of Britannia Building Society.
I broadly welcome the Bill, especially the proposed introduction of a moratorium on companies that find themselves in financial distress, which is intended to be a permanent measure. Temporary measures included in the Bill to alleviate pressure on and support for business through the current pandemic are, in my view, a vital move forward and are urgent. It is obvious that the fallout from the pandemic for the vast majority of businesses, especially SMEs—many of them family businesses—will be at the very least exceptionally serious. Many of these businesses are successful and profitable enterprises, but no one has any idea whatever what the financial future will hold as the world pulls through this dreadful time. Anything that the Government can do to alleviate the financial problems facing business must be welcomed. I congratulate the Chancellor on his supporting initiatives to date—albeit that the distribution of loans has been full of problems.
Although the temporary measures proposed in the Bill are vital and have been drafted as a matter of urgency, the measures intended to be permanent have been out for consultation since 2018. These measures, too, are most necessary but require further improvement for the legislation to be able to work efficiently and fairly. This has been flagged up by insolvency practitioners, and their expert advice should be heeded. Will my noble friend confirm that Parliament will have the opportunity to amend any shortcomings in this fast-track legislation in the future through an amendment Bill or through secondary legislation, should that be deemed necessary?
Serious lessons need to be learned from the banking debacle of 2008. Your Lordships will recall that one of the largest banking failures at the time was Royal Bank of Scotland. That bank had a division known as Global Restructuring Group that became infamous. The toxic fallout from that scandal continues today and is well documented. Does my noble friend agree that it is right and proper that financial institutions in this country should be expected, as a matter of law, to act in good faith in all their dealings with commercial borrowers? Profitable businesses that borrowed considerable sums experienced problems as a result of the property downturn. They were placed under the care—if, indeed, you can call it that—of GRG. Their assets were valued and borrowers were often offered a restructuring of the loan, sometimes at a greater figure than the revised valuation. In many cases, GRG declined and sold the assets to a part of RBS called West Register. I believe that, if they had been allowed to sensibly restructure, many of those affected businesses would be active and profitable today.
Given the widespread use by financial institutions of the threat of putting a company into administration as a means of gaining commercial leverage in negotiations with borrowers, will Her Majesty’s Government consider protections against such behaviour? What consideration are HMG giving, in the current changes to insolvency legislation or elsewhere, to introducing checks and balances such that financial institutions cannot appoint their chosen insolvency practitioners to run companies into insolvency and thereby control an administration or liquidation process?
In conclusion, I welcome this Bill and its intentions and proposals, but the Government should come forward with their own amendment to enshrine in law that lenders in commercial lending must comply with a duty of care to their borrowers so that, when times get tough, borrowers are treated fairly and properly and that scandals such as the GRG episode never happen again.
Lord Liddle (Lab) [V]
My Lords, I commend the Government for their urgency in bringing forward this legislation. It is clear that, as a result of Covid, we face a potentially massive corporate crisis affecting companies large and small. Through the moratorium and the associated measures, the Bill provides a breathing space for a restructuring plan—so it is part of the solution, but not the whole solution. As the noble Earl just explained, we certainly do not want a repeat of the way some banks and creditors behaved in the aftermath of the 2009 financial crisis. They certainly did not act in either the interests of the companies or the public interest.
Many speakers have referred to corporate rescues and highlighted various bad business practices resulting from them. I have a lot of sympathy for that, but in our present situation it is absolutely essential that there is an effective corporate rescue mechanism that enables firms with a sustainable future to survive. That is why this legislation is so important.
The noble Lord, Lord Leigh of Hurley, thinks that this rescue mechanism can be financed by the private sector; I am sceptical. I think that the private sector will come in only if it thinks it can buy the assets cheaply and have total freedom, without constraints, to do what it wants with them. I think we will see a need for a massive conversion of debts that companies cannot afford to pay into public equity. The noble Lord, Lord Agnew of Oulton, acknowledged this at Question Time today.
We need a public debate now about how this rescue operation will be organised. There is a great lack of institutional capacity on the part of government to do it; it cannot just be done from the centre. My advice to the Government is to try to devolve the decision-making regionally and expand the role of the British Business Bank. However, none of this rescue will work if, first, HMRC sees its main priority as trying to secure the money it is owed—that would be one hand of the Government not being aware of what the other is doing —nor, secondly, if the Treasury tries to vet every single decision, which would just be hopeless.
Business, of course, has to face up to greater responsibilities, but I think that for small and medium-sized companies we should adopt a lighter touch. The key thing there, in my view, is that public policy should promote a culture of employee engagement. When it comes to the larger public corporations and rules about what dividends can be paid, how much executives can earn and how pensions are to be protected, all that will be inevitable in this process of rescue.
I have a final word for my Labour colleagues. We should not see this as an opportunity to impose heavy-handed regulation and public control on business; we should be trying to move to a reformed, sustainable capitalism. I agree with my noble friend Lord Adonis, who quoted Keynes’s remarks about the need for experimentation in public/private ownership: what we need is a new era of public/private ownership
Baroness Altmann (Con) [V]
My Lords, I declare my interests as set out in the register. I thank my noble friend for his excellent introduction to this Bill, which I welcome. It is clearly in the public interest to support potentially viable businesses that have been affected by the pandemic and give their owners time to explore rescue options and bridge the hopefully temporary disappearance of demand. This Bill introduces the largest reforms to the UK’s insolvency framework for nearly 20 years, alongside emergency temporary changes for the current exceptional circumstances, so it does need proper scrutiny.
I agree with the helpful briefing from the Law Society, which recommends introducing more checks and limitations to reduce the risk of the moratorium being abused, such as ensuring the independence of the monitor, limiting the number of extensions and limits on related-party restructurings.
I share the concerns of many other noble Lords, including my noble friends Lady Neville-Rolfe and Lord Leigh of Hurley, about the reintroduction of HMRC’s preferential creditor status on insolvency. Indeed, as the noble Lord, Lord Palmer, alluded to, this seems inconsistent with spending so much public money to help firms through the current time. The success of emergency public funding could be undermined by the sudden leap-frogging of HMRC claims on corporate resources, even though I recognise that corporation tax, employer NICs and others will remain as unsecured debt.
I also have concerns about the banking sector being able to take advantage of super-priority status, such as the new provisions in paragraph 13 of Schedule 3, which inserts new Section 174A, and paragraph 31 of Schedule 3, which amends Schedule B1. If the firm fails within 12 weeks, bank overdrafts could enjoy super-priority, catapulting them above a pension fund or other preferential creditors.
This leads me to echo the comments from the noble Baronesses, Lady Drake and Lady Warwick, the noble Lord, Lord Hain, and my noble friend Lord Balfe, among many others, regarding the position of workers’ rights, especially protection of the rights of underfunded DB pension schemes and the Pension Protection Fund in the event of employer distress or insolvency. By granting super-priority status to unsecured finance debt and HMRC, among others, the position of the PPF will be significantly weakened.
I recognise that full Section 75 debt, in the light of exceptionally low gilt yields influenced by the central bank’s QE policies, could swamp all other creditors, but perhaps the Government could support measures to ensure that the pension fund is not sidelined in amendments to this Bill in Committee. If not full Section 75 debt, there could be super-priority for Section 179 debt or, at the very least, for technical provisions, so that the Pension Protection Fund is not gamed on insolvency by banks or even by HMRC.
Will the Minister consider, as suggested by the PLSA, ensuring that unsecured finance debt is given only the same status as a defined benefit pension scheme sponsored by the employer, and ensure that the PPF will have creditor rights to give it a seat at the table for key creditor discussions?
Lord Fox (LD)
My Lords, I declare my interests as set out in the register. I thank the Minister for his introduction to the Bill, and for the time that he spent explaining it. I am gratified that we find ourselves in the Chamber; I just enjoyed a ceremonial fly-by by several moths, which made me feel that I am back at home.
The noble Lord, Lord Dobbs, seems to be missing the theatre. I read in Hansard the fast-tracked debate in the other place and, for all the drama of ministerial interventions, I absolutely believe that the issues raised today in your Lordships’ House outnumber the issues raised there. I thank the staff of the House who have enabled all Peers to contribute to this debate, no matter their age, their location or, indeed, their health.
Insolvencies are an important issue, and this has been reflected in this debate. They will determine the fate of millions of jobs in this country, as your Lordships have set out. We on these Benches welcome the spirit of this Bill and its intentions, but of course, the purpose of your Lordships’ House is to avoid that phrase that has come from noble Lords’ mouths many times: “the unintended consequences of legislation”.
The Minister explained very fluently that the Bill is made up of two sorts of legislation, some temporary—emergency legislation, if you like—and some permanent. My noble friend Lady Bowles described that as “lumpy” and the noble Baroness, Lady Neville-Rolfe, described it as “cheeky” but, rather more severely, the noble Lords, Lord Blencathra and Lord Hodgson, called into play the probity of bringing in permanent legislation through a fast-tracked process. It is clear from many of your Lordships’ contributions today that there is considerable concern on all Benches about the way this legislation is being mixed. In the other place, my colleague, Sarah Olney, introduced some amendments that essentially introduced sunset clauses for the permanent elements of this legislation; those amendments may resurface next week, I dare say.
Turning to the moratorium, a key area of discussion has been the role of the monitor. Again, from all sides of the House, there is some concern as to what this role is and how this monitor fits into the various mechanisms of recovery. The interplay between the monitor and the directors is not clear. The directors clearly have a set of legal responsibilities to their owners, to their shareholders. How does the monitor’s role fit in? The directors are also required to make all the facts available when dealing with auditors and others. Does the monitor enjoy the same legal access to that company’s information that auditors enjoy? The noble Lord, Lord Stevenson, raised Carillion. The role of auditors, even with access to all that management information, is deeply flawed. The Minister probably does not have enough time to set out in detail today the role of the monitor, but for the Bill to carry on, it would be very helpful if he could do so in writing before Committee. It would very much enhance the quality of that debate if we had some bullet points on the monitor’s role and how it would do its job.
I turn now to the termination clauses. Many speakers, not least my noble friend Lady Bowles, have set out their deep concern about how these clauses could poison the supply chain within businesses. Again, I do not think it is the intention of the Bill to do that, but it is the Government’s role to set out how the supply chain will work. The Bill makes it clear that supplier companies have to keep supplying to businesses that they may suspect are beginning to go under.
I asked the following question of the Minister when we had our meeting, but obviously I asked the wrong question because I got the wrong answer. One of the signs that a business is starting to fail is when the trade credit insurance premiums go up. Supplier companies take out insurance against a customer of theirs defaulting on payment. The first thing that happens is the rate goes up and the second is that the business cannot take out trade credit insurance anymore. I was told that the Bill does not affect trade credit insurance, so we are in the rather poor situation where the supplier would be compelled to continue supplying its customer but would not have access to trade credit insurance because we are not in any sense changing that relationship. That issue needs to be cleared up.
I turn to restructuring, the third of the permanent elements. This introduces a cross-class cram down, which sounds rather like something the French do to geese, but is apparently a perfectly legitimate activity in this country. Indeed, the noble Viscount, Lord Trenchard, will be pleased to know that it is an EU rule as well. However, it looks like it will put a lot of onus on the courts. The noble and learned Lord, Lord Thomas, sounded the alarm about whether the courts would have the capacity or the time to run this. First, does the Minister agree that this will be very helpful to lawyers, who will be the beneficiaries? Secondly, can he confirm that the courts will have the capacity to handle what could be a great many of these wrangles?
We come now to the oft-repeated issue of the role of HMRC and its access to the debt. It is clear—I do not need to repeat all the arguments—that this is an absolutely central issue in the Bill, which needs to be cleared up before we go any further. I hope that the Minister will acknowledge that this is an issue, even if he cannot offer a solution.
A second key point concerns pensions, pension trustees and the PPF. Again, some authoritative interventions have been made by the likes of the noble Baronesses, Lady Drake, Lady Warwick and Lady Altmann, that absolutely sound the alarm bells on this. It is imperative that the Government should go back and rethink where the pension fund sits in the credit waterfall.
Moving to the emergency provisions, by the time the Bill reaches Royal Assent, I think it will have about three days left to run before it has to be extended, so I assume that it is the Government’s intention to extend. Given that, why do they not bring forward an amendment in Committee that would save the need to table an SI? I believe that the noble Lord, Lord Stevenson, suggested the date of 30 September, which would be acceptable to these Benches.
On the subject of the suspension of wrongful trading, this is essentially a beneficial measure and we support it. It is clear that it was one of the issues that stood in the way of people seeking CBILS loans early in the process in that banks were looking at businesses and their cash flows in the here and now, which was exactly why they were going for the loan, so the notion of suspending this is perfectly correct.
I have nothing much to say on winding-up petitions, other than that it was broached in the other place that there is a need for the creditor requesting a wind-up to indicate that a business’s inability to pay its debt was caused by something other than the Covid crisis. How the creditor is going to make that case will be an issue, and the Minister may have some comment on that.
Also on wind-ups, the noble Lord, Lord Mann, who is not in his place just now, mentioned football clubs. Of course, HMRC is the great winder-up of football clubs. When the process in the emergency legislation has been gone through, there will be tax bills outstanding for previous years and very low cash flow. Will the Minister undertake to talk to his colleagues in the Treasury and ask HMRC to restrain its natural tendency with regard to tax bills when it comes to winding up companies?
There are a number of curious issues. We will go away and look at Hansard, and mull over the mixing of emergency and permanent legislation. We will look at the credit waterfall, and in particular at some of the issues highlighted by my noble friend Lady Bowles. We will listen to what the Minister has to say about HMRC, and we will look to see how the Government intend to make sure that banks do not manipulate their position. We will of course also want to hear what the Minister has to say on pension funds. All these issues may resurface next week in Committee.
The message from this debate is that the Bill is not without its problems, and I hope that the Minister takes these on board.
Lord Lennie (Lab) [V]
My Lords, I begin by thanking everybody who has spoken in this important debate today, and the Minister for the briefings, meetings and information that he has provided on the Bill—it has been very helpful. It has been good to hear so many contributions concentrate on the vital matter of how the Government can produce a framework to support businesses and give them the best fighting chance of succeeding, rather than falling prey to insolvency.
I would like to draw particular attention to the speeches on pensions and pensions governance, by my noble friends Lady Drake and Lady Warwick; on workers’ rights, by my noble friends Lord Hendy and Lord Hain; and on encouraging entrepreneurs in the future, by my noble friend Lord Blunkett. I reassure my noble friend Lord Liddle that the Labour Party is no longer interested in replacing capitalism; sustained capitalism is here to stay, I assure him. I also draw attention to the speech of my noble friend Lord Stevenson, who introduced, with understanding, comprehension and intellect, the range of concerns that we have with the Bill and its shortcomings.
In this brief contribution, I will summarise where the Labour Party feels that the Bill could, and should, do more, and indicate where we will table key amendments in Committee. Faced with the most dramatic recession for centuries, we must do all that we can to save as many viable businesses as possible from going under. This will help make the recession less deep and the recovery less difficult.
The Resolution Foundation estimates that up to 7 million people—workers—will face unemployment if the coronavirus pandemic lasts for up to 12 months; already we are at three months. A second wave of support for businesses will be essential if we are to prevent avoidable future closures and mass redundancies. Already, there have been redundancies of 500 jobs at Aston Martin; 1,500 jobs at Lookers; 3,000 jobs at the Restaurant Group; and, as of yesterday, 10,000 jobs worldwide at BP. Surely that must concentrate the mind of the Government to do more, and more quickly, to provide additional help for the sectors that will take longer to recover, such as hospitality, tourism and the arts. We need a recovery plan to take us out of recession.
Having forced the closure of many businesses, it is right that the Government should do all that they can to support these businesses in their rescue and recovery phases. The Government must act quickly. Where the Bill proposes measures that help to reduce insolvency, we will of course support it. Where it needs improvement, particularly to support the less powerful, we will seek to amend it.
On a permanent basis, we think it is right to give breathing space to firms; preventing suppliers from sending businesses into early liquidation is the right thing to do. On the temporary measures, it makes good sense to remove the threat around winding-up orders, and the suspension of personal liability for wrongful trading makes sense on a strictly time-limited basis. Easing the requirements for company filing deadlines and AGMs is also sensible.
The length of time that measures need to be in place is, however, open to question, as my noble friend Lord Stevenson and the noble Lord, Lord Fox, have said. Does anyone believe that extending deadlines until 30 June, or 30 days after the Bill is passed, will really be long enough?
Preventing hostile action against businesses during this time will be essential, until they have enough opportunity to prove their continued viability. Surely the Government, like the rest of us, know that this will take beyond 30 June or 30 days after the Bill is passed. The end of September might make more sense as an initial deadline. Some believe—indeed, some Tories believe—that the end of the year would be a better deadline than that. Many businesses will not even have reopened on 30 June—hospitality, entertainment, restaurants and pubs, to name but a few. How can they hope to be persuaded of their continued viability 30 days thereafter?
The rights of workers are absent from the Government’s proposals. As has been made clear by the noble Baronesses, Lady Drake and Lady Warwick, when a company is drafting an RP, surely it makes sense to consult its most valuable asset—its workforce. The legal underpinning of this would prevent the kind of hostility that there currently is at British Airways. Rather than keeping the workforce uncertain and cast in the role of reacting to the proposal, as their jobs and futures are at stake, surely they should have the legal right to consultation and to have their voices heard, as a contribution to restructuring plans.
The treatment of pension funds is curious. I am grateful to the Pensions and Lifetime Savings Association for highlighting this problem. Defined benefit provision schemes, as unsecured creditors, will likely lose out to banks and other financial arrangements, as secured creditors, thereby ranking pension funds below the bankers. In the event of insolvency, by the time the secured creditors have been paid out, there is unlikely to be anything left to pay pension fund contributions. Why do the Government not propose to treat them as priority creditors? Pensions are deferred earnings and their value should not be put at risk by this legislation.
As to the future, the Government should have a credible plan about how they will support the green new deal. Will they put in place new apprenticeships that will support the insulation of our homes, the design and building of electric cars, and the building of new forestry areas—major projects designed to help our economic recovery? If nothing else, this crisis has shown that only government can will the resources to steer companies out of a deep economic recession.
The Labour Opposition support the Government in these measures in so far as they go, although this is a long and complicated piece of legislation, but we have concerns about the limitations of, and other absences from, the Bill. We will table amendments to this effect in Committee. In the meantime, we look forward to hearing the Minister’s response.
Lord Callanan
I start by thanking all noble Lords, both in person and virtually, for their insightful contributions to this debate, which has shown this House at its best, and for the co-operation of many and their engagement throughout the Bill. I thank particularly the Labour and Liberal Democrat Front Benches for the co-operative spirit that they have shown. I am grateful to all noble Lords who have contributed, and who are helping us scrutinise the Bill effectively.
The points raised have highlighted the importance of the measures in the Bill and the necessity of giving them effect without delay. The permanent package of insolvency reforms in the Bill—the moratorium, restructuring plan, prohibition of termination clauses, et cetera—will provide businesses with the space and tools they need to help them continue trading and avoid insolvency during this challenging time and beyond. It is vital that we introduce these measures immediately to help UK businesses weather this crisis and, I hope, thrive on the other side.
The temporary changes to insolvency law introduced are necessary to help businesses get through this unprecedented period. The temporary suspension of wrongful trading liability will encourage directors to use their best endeavours to keep trading through Covid-19 by removing the threat of personal liability. I again reiterate that directors will still be bound by their wider legal duties under company and insolvency law.
The Bill also temporarily prohibits creditors from issuing statutory demands and winding-up petitions against companies unable to pay their debts due to Covid-19. It will give businesses and creditors the opportunity to co-operate to reach a fair agreement and help companies survive. These temporary insolvency measures are retrospective in effect and have been widely welcomed by the business community. They will apply until one month after Royal Assent and can—and will—be extended should it prove necessary to do so. Of course, any case for further extensions will be carefully considered and subject to all the usual scrutiny that this House undertakes.
The temporary changes to corporate governance that the Bill introduces will provide companies and other bodies with much-needed temporary flexibilities on meetings and filings. This is of particular importance at this critical time, when businesses are struggling to cope with reduced resources and, like the rest of us, are abiding by social distancing rules. We have been careful, throughout this process, to take account of the interests of investors and others in devising these measures.
I will now respond to the many points that have been made. Many noble Lords, including the noble Lord, Lord Stevenson, and my noble friend Lord Balfe, raised the important issue of employees’ rights. I am in complete agreement with my noble friend Lord Dobbs, who summed it up extremely well—as he usually does—when he said that the greatest protection for employees is to see their company survive. Where employees are included in restructuring plan proposals, they will be treated in the same way as other creditors, including in relation to their right to information, participation in voting and ability to make representations to the court. I can confirm to my noble friend Lord Balfe that I fully support ministerial colleagues in the other place, who said that it is expected that the court would be mindful of the interests of employees affected by a restructuring plan when deciding if that plan is just and equitable.
The noble Lords, Lord Stevenson, Lord Mendelsohn and Lord Hain, my noble friend Lady Altmann and other noble Lords asked about the classification of pensions and defined benefit schemes. Similar issues were raised by the noble Baronesses, Lady Drake, Lady Warwick and Lady Blower. Employees will want the company pension scheme to be able to pay them when they retire. If an employee is not a creditor or shareholder of the company, they cannot be included in a restructuring proposal. The interaction between pensions legislation and insolvency legislation gives rise to some extremely complicated issues, and the Government are working closely with key stakeholders to determine any implications for the Pension Protection Fund, the Pensions Regulator and pension schemes more generally.
The noble Baroness, Lady Bowles, spoke about the prioritisation of debt in relation to moratoriums and termination clauses. If a moratorium ends and is followed within 12 weeks by administration or liquidation, any unpaid moratorium debts, including those to suppliers who were obliged to continue supply under the new termination clause provisions, will indeed receive super-priority. This means that they are paid above all expenses of that administration or liquidation, including the administrator’s or liquidator’s fees and payments to other creditors, other than fixed-charge creditors.
On super-priority, the noble Baroness, Lady Bowles, and the noble and learned Lord, Lord Hope, both raised points on preventing banks profiting in moratorium. We are aware of the concerns that have been raised about the priority order of debts. We are also very conscious that attempts to game super-priority, by banks or anyone else, should be deterred. The Government are working with all the relevant stakeholders to ensure that creditors are not disadvantaged by these important measures, and we will continue to work to avoid this.
On the knotty subject of HMRC, many noble Lords, including the noble and learned Lord, Lord Hope, the noble Lords, Lord Adonis, Lord Palmer and Lord Liddle, and my noble friend Lord Leigh, raised concerns about Her Majesty’s Revenue and Customs climbing up the creditor ranking, not through this Bill but through other work that is being done. This House will of course agree—I hope—that it is important that taxes go to fund our valuable public services. This reform will ensure that when a business becomes insolvent, more of the taxes that have already been paid in good faith by its employees and customers, but which are held temporarily by the business, will go to fund public services, as intended, rather than being distributed to other creditors. This is money that has already been paid by employees but is held by the business. It is important to note that HMRC will remain an unsecured, non-preferential creditor for taxes levied directly on businesses, such as corporation tax and employer national insurance contributions.
I thank the noble Lord, Lord Stevenson, and my noble friends Lord Dobbs and Lady Neville-Rolfe for their important points on the need to extend the powers of the Small Business Commissioner. This Government intend to fulfil our manifesto commitment to consult on extending the powers of the Small Business Commissioner to advocate for and support small businesses as soon as we are able. We are keen to capture as many views as possible to ensure that the policy response is the right one. In light of businesses having furloughed staff and other priorities, we do not believe that consulting now would be the correct course of action.
The prompt payment code was raised by the noble Lord, Lord Stevenson, as well as the noble Baroness, Lady Kramer. The code now has more than 2,400 signatories. UK legislation already effectively establishes maximum 30-day payment terms for contracts for the supply of goods and services between businesses and public authorities. There are 60-day maximum payment terms between businesses, although longer payment terms may be agreed, provided that they are not grossly unfair to the supplier. To make the voluntary code mandatory without further appropriate modification would in effect set maximum payment terms for large companies when contracting with smaller suppliers.
I understand that it might seem desirable but, while setting limits on the maximum legal payment terms might address the problem of lengthy payment periods in some commercial contracts, we believe the disadvantages of a one-size-fits-all approach are of greater significance.
I thank the noble Lord, Lord Stevenson, my noble friend Lord Bourne and others for raising their concerns on the need for directors to continue to act in good faith when wrongful trading liability is suspended. Let me reassure them and other noble Lords who raised this point that directors will still be obliged to comply with their normal duties, as clearly set out in the Companies Act. Other remedies will remain available where directors do not meet acceptable standards of behaviour, such as fraudulent trading provisions. I therefore hope that noble Lords will agree that, with these provisions stated elsewhere, putting them in the Bill is unnecessary.
I pay tribute to the noble and learned Lord, Lord Hope, for raising an important point on the role of the court, as mentioned in Clause 10, in relation to wrongful trading. Let me reassure him that the wording of the clause is sufficient to direct the court to make an assumption. It does not invite an argument to the contrary. The noble and learned Lord may be aware of similar provisions elsewhere in insolvency legislation which create the possibility of rebuttal. For example, where a preference payment is made by a company, which may be clawed back by a liquidator, and the recipient is a connected party, it is presumed to have been made with the intention of putting the recipient in a better position in the event of insolvency “unless the contrary is shown”. The last part of that provision creates the opportunity for rebuttal, and Clause 10 does not use such language.
The lack of transparency of pre-packs was raised as a concern by a number of noble Lords, including the noble Lords, Lord Vaux and Lord Mendelsohn, and my noble friends Lord Hodgson and Lady Neville-Rolfe. The Government recognise creditors’ concerns about pre-packs, particularly where the sale is to a connected party. If strengthening of professional standards and the existing regulation do not deliver increased creditor confidence in connected pre-pack sales, the Government will look to bring forward further legislation.
The noble Baroness, Lady Bowles, asked whether Companies House undertakes scrutiny of information submitted during this emergency. The register of companies is continuously under scrutiny. It was accessed more than 9.4 billion times in the financial year 2019-20. With so many eyes viewing the data, any errors, omissions or worse can be identified and reported. Companies House undertakes numerous checks on the validity of information, both at incorporation and throughout the life of the company as new information is submitted. Companies House will continue to be vigilant during the current period. Compliance with the extended deadlines is still expected, and the existing offences and penalties for late filings, as set out in the Companies Act 2006, will continue to apply.
In addition, my noble friend Lord Wei asked whether late filings should be reflected in the credit rating of a company. This is already the case. Extending the filing deadline will therefore ensure that filings are not classified as late. This will help directors to focus on managing their businesses without being diverted by credit rating changes based on temporary practical impediments to filing while the Covid-19 restrictions apply.
The noble Lord, Lord Vaux, the noble Baroness, Lady Burt, and my noble friend Lord Blencathra raised concerns regarding small suppliers once termination clauses are prohibited. We think it right to give a temporary exemption to small companies at a time when many are suffering due to the pandemic. I entirely understand and sympathise with noble Lords’ concerns and the desire to assist small companies; the intention is to do so for as long as necessary in the current economic climate. I assure them that if the protections are needed beyond their present expiry date, they can be extended by statutory instrument. In addition, we have built in numerous protections for suppliers who are required to continue supplying a company during a moratorium or other insolvency procedure, including allowing suppliers to apply to a court for permission to terminate a contract if continuing supply would cause them hardship.
My noble friend Lord Dobbs mentioned the need for the moratorium to run beyond 20 business days. The initial moratorium period of 20 business days can be extended by the company by a further 20 business days, and further extensions beyond that can also be made with creditor or court approval.
On timing, the noble Baroness, Lady Falkner, asked whether there was a limit to the number of times a moratorium could be extended. While creditors can agree to extend a moratorium a number of times, they cannot agree cumulatively to extend beyond one year. A court may extend beyond one year but, when doing so, it must consider the interests of pre-moratorium creditors and the likelihood that the extension will lead to a rescue of the company.
During the debate, we have heard several questions about moratoriums, including from my noble friends Lord Hunt, Lord Flight and Lady Altmann. I assure the House that the qualifying condition of entry into a moratorium is that it is likely that the moratorium will result in the rescue of the company. This will be assessed by the proposed monitor of the moratorium prior to their agreeing to take the appointment.
On the lack of a requirement to seek support from the secured creditors, the moratorium will enable companies to act early, which we hope will increase the chance of a successful rescue. For unsecured creditors, the new moratorium can be accessed only if the company is likely to be rescued as a going concern in the opinion of an insolvency practitioner. Where a rescue is achieved via the moratorium, all stakeholders of a business, including secured creditors, will benefit.
On her point about individual bankruptcy, I assure my noble friend Lady McIntosh that the Government recognise fully the impact of Covid-19 on individuals. We will continue to monitor the situation as a whole and consider whether further measures are needed. Credit card companies and other lenders have been required by the Financial Conduct Authority to offer payment holidays to people struggling to make repayments at this time, and it has issued guidance to lenders about offering mortgage payment holidays and halting repossession actions.
I appreciate the points made by the noble Lords, Lord Stevenson, Lord Mendelsohn, Lord Palmer of Childs Hill and Lord Mann, and my noble friends Lord Hunt, Lady Altmann and Lady McIntosh on insolvency practitioners acting as monitors. Insolvency is a highly regulated profession. Insolvency practitioners are qualified members of a recognised professional body who are required to abide by legislative, professional and ethical standards. There are strict educational and professional competence requirements for becoming a practitioner, and the vast majority are highly professional individuals with a great deal of expertise in insolvency and business rescue. Where an insolvency practitioner fails to comply with required standards, they can be subject to disciplinary sanctions by their authorising body, which, in the most serious cases, can involve them having their authorisation to practise withdrawn. I hope that this goes some way to alleviating noble Lords’ concerns.
As the noble Lord, Lord Blunkett, rightly said, the role of insolvency practitioners is positive rather than negative. They can offer professional advice to companies on the best options available and may help businesses to avoid insolvency where appropriate, as well as ease the process where it is inevitable.
The noble Baroness, Lady Jones, spoke about the green recovery. My department is committed to a recovery that is as green as possible, and it is of course responsible for energy and for COP 26.
I turn to the point raised by my noble friend Lady Anelay about charities and the impact that the Bill will have on that sector. As my noble friend said in her contribution, it is important to listen to those closest to the third sector. Colleagues at the Department for Digital, Culture, Media and Sport have developed these measures alongside the Charity Commission. The commission has indicated that it will take a proportionate approach where members’ meetings need to be postponed or held virtually in order to comply with social distancing, even if that is contrary to the rules of the charity’s governing document. In such cases, the Charity Commission advises trustees to record their decisions, attendees and the time of the meeting in order to demonstrate good governance of the charity. I hope this will provide some reassurance to my noble friend and to those charities that the regulator will adopt a sensible and flexible approach in the current difficult circumstances.
We have heard a number of concerns about the limited time available to scrutinise the Bill, and I totally accept the points made by many noble Lords. These concerns were rightly highlighted and raised by my noble friends Lord Blencathra, Lord Flight, Lord Shrewsbury and Lord Trenchard. The Bill contains a series of familiar measures; in fact, many of these insolvency measures have been consulted on and refined over many months. Her Majesty’s Government were always seeking to bring forward reform to the insolvency regime that would bring our regime in line with those of other nations with similar economies. Covid-19 has, sadly, made the need for these measures more acute.
The other provisions in the Bill are all temporary. If the Government wish to extend their operation, both Houses will have the opportunity to scrutinise the relevant order. In addition, any regulations made after the Bill will of course be subject to the usual scrutiny.
The noble Lord, Lord Stevenson, asked whether there was no limit to the overall number of times that the temporary measure can be extended. At present, all the temporary insolvency measures will automatically sunset one month following Royal Assent. The Bill contains a provision enabling these temporary measures to be extended by statutory instrument where appropriate. The Government have every intention of making use of that provision if the protections are needed beyond their present expiry date. The maximum time period for which the temporary measures can be extended by statutory instrument is six months and the power to extend can be used more than once, so there is no absolute sunset.
The noble Baroness, Lady Kramer, asked for the Bill to sunset the permanent measures. The permanent provisions have not just been developed in the short time since Covid-19 first appeared; they have been the subject of a considerable period of consultation and engagement dating back to 2015. This process included the then Government’s review of the corporate insolvency framework, a public consultation in 2016 and an extensive period of engagement since then with a wide range of stakeholders. Additionally, the Bill includes regulation-making powers to enable changes to be made as and where necessary.
At present, all the temporary insolvency measures will automatically sunset the month after Royal Assent. These measures all have significant impacts on the normal working of various parts of insolvency legislation and the business community, and they will need to be considered and scrutinised by Parliament when determining when the temporary measures should be extended and for how long. The Government also have the power to bring any temporary measures to an early end if they are no longer required.
My noble friend Lord Trenchard also raised a point on the introduction of retrospective legislation. The decision to make certain aspects of the Bill retrospective has been taken for specific policy reasons. For example, in the case of the suspension of wrongful trading, retrospection takes effect at the time the Covid-19 emergency began, rather than when the Bill is enacted.
I thank the noble Lords who raised the use of Henry VIII powers. I thank the chair of the Delegated Powers and Regulatory Reform Committee, my noble friend Lord Blencathra, for his comments on these powers. We all look forward to receiving the committee’s report on the Bill, which I think is due tomorrow. The Bill contains powers to enable its provisions to be adapted to different types of corporate body or bodies subject to special insolvency procedures, as well as to ensure that the detail of the procedures can be amended in the light of these reforms. Delegated powers are also included to extend the temporary provisions should it prove necessary and to make other temporary amendments to insolvency law to deal with the effects of Covid-19 where needed.
The noble Baroness, Lady Northover, raised a point about impact assessments on the Bill’s measures. The impact assessment estimates that the three permanent changes to the UK insolvency framework will result in net benefits totalling over £1.9 billion in today’s prices. The equivalent annual net direct cost to business of the three permanent changes to the UK insolvency framework is estimated to be minus £222.9 million. In other words, we estimate an overall £222.9 million annual net benefit.
I will respond to the point from the noble Lord, Lord Fox, about WUPs and the Covid test: how, in this climate, the creditor will be able to show that the test has been met, and whether it is to be fleshed out by the courts. Whenever legislation creates a new legal requirement, it will of course be for the courts to consider how the test should be applied in individual cases. Indeed, this measure is no different. The test of whether Covid-19 has caused the company’s difficulties is indeed intended to present a high bar. The measures in respect of statutory demands and winding up petitions are intended to temporarily enforce the forbearance from creditors that the Government have called for.
I will be happy to meet the noble Lord to discuss trade credit insurance. He also asked about what happens if directors do not co-operate with the monitor. The legislation enables the monitor to bring the moratorium to an end if the directors fail to comply with the rules. These include providing information requested by the monitor and paying certain debts due during the moratorium period.
In closing, since 23 March this country has faced unprecedented hardship as a result of the stringent social distancing measures necessitated by the Covid-19 pandemic. As noble Lords are all aware, UK businesses have been hit hard as a result, with many unable to trade or facing a significant reduction in demand for their goods and services. Consequently, many otherwise viable companies face the threat of insolvency.
The Government are committed to doing all we can to support businesses during this challenging time to ensure that they can bounce back once the pandemic is over. The measures introduced by the Bill offer vital support alongside the substantial fiscal support packages for businesses and workers already in place. It is crucial that these measures are brought forward as a matter of urgency to protect those businesses. They will provide the flexibility and breathing space needed by businesses large and small to ensure their survival now and as the country emerges and rebuilds from this crisis.
Corporate Insolvency and Governance Bill
Tuesday 16th June 2020
(3 years, 10 months ago)
Lords ChamberRead Full debate Corporate Insolvency and Governance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 113-I Marshalled list for Committee - (11 Jun 2020)
The Deputy Chairman of Committees (Baroness Henig) (Lab)
My Lords, a limited number of Members are here in the Chamber, respecting social distancing, and if the capacity of the Chamber is exceeded, I will immediately adjourn the House. Other Members will participate remotely, but all Members will be treated equally, wherever they are. For Members participating remotely, microphones will unmute shortly before they are to speak—please accept any on-screen prompt to unmute. Microphones will be muted after each speech. I ask noble Lords to be patient if there are any short delays as we switch between physical and remote participants. I should remind the House that our normal courtesies in debate still very much apply in this new hybrid way of working.
I shall begin by setting out how these proceedings will work. A participants’ list for today’s proceedings has been published and is in my brief, which Members should have received. I also have lists of Members who have put their names to the amendments or expressed an interest in speaking on each group. I will call Members to speak in the order listed. Members’ microphones will be muted by the broadcasters except when I call a Member to speak. Interventions during speeches or before the noble Lord sits down are not permitted, and uncalled speakers will not be heard.
During the debate on each group, I will invite Members, including Members in the Chamber, to email the clerk if they wish to speak after the Minister. I will call Members to speak in order of request and will call the Minister to reply each time. Debate will take place on the lead amendment in each group only. The groupings are binding and it will not be possible to de-group an amendment for separate debate. A Member intending to press an amendment already debated to a Division should give notice in the debate. Leave should be given to withdraw amendments. When putting the Question, I will collect voices in the Chamber only. If a Member taking part remotely intends to trigger a Division, they should make this clear when speaking on the group.
Clause 1: Moratoriums in Great Britain
Amendment 1
Lord Stevenson of Balmacara (Lab) [V]
My Lords, in moving Amendment 1, I shall speak also to Amendments 2, 5, 6, 10 and 14, which are either in my name or in the name of my noble friend Lord Lennie. As I am afraid is true perhaps of all our proceedings this afternoon, this is quite a wide group. A lot of issues are raised, and I hope that we will have appropriate time to ensure that the points made are recorded and responded to by the Minister.
Amendment 1 concerns the question of whether the new post of monitor should have an appropriate set of regulations and, if so, what they should be. The amendment makes a rather narrow proposal for qualifications from a UK chartered accountancy body. As a member of the ACCA, I should of course declare an interest in this discussion. I would have expected there to be a broad interpretation of this issue, and this is just a probing amendment to try to get a response on the record. It raises the wider question of whether the persons likely to be involved in acting as monitors should be restricted to those with an accountancy background, because in many cases we are trying to develop a new approach to company rescue and relaunch in this country. It does of course happen in many ways, but the Bill perhaps provides a focus for a new mission on this. Of course, over the years, those who were involved in this have grown up from a number of different backgrounds, including lawyers and other professionals, as well as accountants, and we should be alert to that.
A wider question is raised. There is very little in the Bill about what the Government have in mind for those who will occupy this key role. Maybe the Minister can put a little more shade into the detail of this. Perhaps he could offer that notes might be published at some future date relating to the post of monitor, or regulatory provisions put into the Bill in relation to points that might be raised on later amendments. Those are all important considerations. We do not want to hold back the Bill because it is important that we get it in play but, if this initiative to provide breathing space and time for companies to rethink what they are doing is to work in practice, we will need people with real additional skills to those that are available more generally within the IP profession at the moment. We will need to encourage them to develop those skills, bring forward their version of what we find works, and build on those.
Amendment 1 is perhaps rather narrow in its application when seen in print, but there is a broader resonance behind it, and I hope the Minister will be able to respond to that in kind. Amendment 2, which I will speak briefly to, is a question about independence of the postholder of the position of monitor. It was raised on Second Reading and in the other place. We assume that there is no question but that those appointed to the post of monitor will be truly independent and able to exercise judgment in relation to the future of the companies with which they are involved. But again the Bill is silent on this, and perhaps I can again ask the Minister to speculate on how he might bridge the gap there in relation to guidance or regulation itself if required.
Amendment 5, in the name of my noble friend Lord Lennie, touches on an issue that will come up in a number of groups today: the role of the employees involved in companies which might be considering the use of the breathing space, the consideration of a reorganisational restructuring or, if it goes down that route, going into administration to preserve the assets held within a company for the creditors who are due to be repaid. In the latter case where we go into formal procedures, the law already is very solid on the role that must be played by employee representatives of particular trade unions, and particular aspects of consultation are brought into it. But the Bill is silent on what would happen in relation to these new initiatives about breathing space and the idea of trying to restructure in the time provided for it.
Could the Minister mention, when he comes to respond, whether he is minded to think further about these issues? It may not be necessary to do it on this Bill, but I think it would give comfort to those who have this amendment and other amendments to be discussed later this afternoon if he could say something at this stage about the Government’s overall position towards union employee representatives in relation to ongoing companies’ works. Any of us who have worked in business know that a tremendous role is played by employee representatives in the business of companies. Anybody who denies that is either unsighted or is just being provocative. In a good company, it is as natural as the air we breathe to consult and discuss issues of substance in relationships within the company with your employees. If you do not do that, you will suffer. It therefore makes no sense to arbitrarily dismiss that as a possible way forward in this legislation. I look forward to hearing the Government’s response on that. Only good can come from any movement in this area.
Amendment 6 concerns an issue that was also raised at Second Reading and is worthy of further consideration. The Bill correctly places a limit on the aspirations for recovery in relation to the monitor and their work by suggesting that they must have in mind the idea that a company rescue would be a possibility. However, this amendment asks: does that not make that a little tight; and would it not be better to use a different word, such as “could”? If it is only a requirement for the monitor to have regard to the fact that there could be a rescue, that seems to me—and to others, perhaps—a better way of opening up the possibilities for how and in what form a company might be rescued. If we are in the business of making sure that companies carry on and saving them, we should not kill them off too early. It would be wrong if the Bill, perhaps through infelicitous phrasing, gave too much away at this early stage of the process. “Could” would be a better word. I look forward to the Minister’s response.
Amendment 10 deals with the timescales for the legislation, as do many other amendments on our agenda that will come later. This amendment is narrow in relation to the timings required by companies to get themselves through the first early stage of consideration on whether a rescue is possible and, if so, how it might be managed. At the moment, 20 working days is provided although there is a possibility for extension. We pose the question, in a probing way, as to whether 30 days may be better. It would be good to get the Government’s response to that. Perhaps we can return to this issue later.
Amendment 14, which is the last one that I will speak to at this point, returns to the rather more complex issue of how long a company or, in practice perhaps, a monitor has to review the state of play in relation to the company, identify its creditor problems, talk to those who are involved in the whole process of the company—including employees, as will often happen —and think through the implications for pensions and other internal commitments. The timing is deliberately left open but when we raised this at Second Reading and the Minister read it out, it seemed that there was effectively no stop on the time limit that could be applied to companies seeking this form of redress in relation to the moratorium. If it is the case that the moratorium could be extended permanently and that that is meant here, perhaps how that happens in practice should be more explicit than simply having to work it out from what the Minister says. This issue was also raised in reports from the Delegated Powers Committee and the Constitution Committee, so we may well come back to it later. Again, it would be helpful if the Minister could clarify this when he responds.
There are a number of other amendments in this group, which we will need to debate. In particular, I want to focus on Amendments 83, 84 and 85 in the names of my noble friends Lord Hendy, Lord Hain and Lord Monks. They are in themselves important but they are also important for the long-term future of the way in which the Government, and indeed the country, deal with company organisation in relation to the points that I have already made, for example about the treatment of workers. I hope that we will have some good debate and discussion on these amendments for future work if we do not see them passed today.
I beg to move.
Baroness Altmann (Con) [V]
My Lords, I have added my name to a number of amendments in this group. If I may, I will leave it to those who formally move the amendments to expand on their thinking and I will give just an overview, in the interests of time.
I support the Bill’s aims. Clearly, it is vital to protect as many jobs and businesses as possible during the pandemic, as the noble Lord, Lord Leigh, rightly says, but due to the speed with which the Bill was introduced, some of the novel ways in which individuals are introduced into the potential insolvency process or the corporate rescue process may need further strengthening. Indeed, further checks and limitations to reduce the risk of the moratorium being abused and more explicit duties on the monitor to ensure their independence are needed. The Bill does not impose any statutory requirement for the monitor to be independent of the company directors, who appoint the monitor.
Lord Mendelsohn (Lab) [V]
My Lords, I will speak to Amendment 3 and make some general observations.
Amendment 3 relates to the recognition of the appropriate debts of creditors. In particular, one must be concerned about smaller businesses, which may well suffer as creditors and unsecured creditors from such a transaction. While these may be smaller crumbs of comfort than the overall Bill, it is absolutely right that businesses that fall into this process properly recognise the full extent of the debts that they owe so that statutory interest is recognised as a cost and a consequence for them. It is right that these debts should be appreciated and recognised in the statements that the monitors have to put forward. I hope that the Minister will consider the Government introducing this measure, not just to make sure of the full amount that is owed to a company because of late payment and late settlement of their debts but also because it sends an important cultural message.
I support some of the measures introduced by other Members of this House. In particular, it is very important that we probe the Minister for much more detail about the role of the monitor. We must look at the qualifications, skills and independence of the people who will occupy those posts, as well as the costs.
Here I am concerned that the impact assessment itself shows that very little work has been done on the likely operating mechanisms of the Bill. The figures that it uses are from a study in 2010, and I hasten to add that in the last decade we have seen a significant increase in the rise of professional service costs, and the costs in the impact assessment do not fully recognise those.
We do not have a full appreciation of what skills are required for this, and I strongly support the notions expressed by my noble friend Lord Stevenson that there are many others who we might want to introduce into this area who have appropriate skills that are recognised by professional accountancy bodies. Many people who have been involved in the turnaround industry would do very well at this task—much better than qualified insolvency practitioners. I would be interested to hear the Minister’s comments as to how the Government will look at the appropriate skills that are required for someone to successfully be able to carry out the role of a monitor, including the measures to try to ensure the proper independence of the monitor, that they have a real view for the potential future success of the business and that they are not beholden to any particular class, but particularly those who are connected parties.
However, I strongly support the amendment, which addresses the difficult question about the time for a monitor. This process should be given an extended period, and it would be worth while in the first instance extending the first period to ensure that we do not go through a quick cycle to make sure that it is there.
On the amendment in the name of the noble Lord, Lord Leigh, while many people will consider this to be a difference without a distinction, he will be able to express the nature of his interpretation.
It is important also to probe the Minister on the fact that we have seen that many businesses, particularly at latter stages, like to structure themselves in such a way that they can move a variety of the different connected parts of the business through different processes, and will disaggregate the overall enterprise and take individual companies to be able to crush suppliers or deal with the dispensing of staff during that period. It is important that the application of a company’s business helps us ensure that companies do not act inappropriately and section off parts of their businesses, as we saw just a couple of days after Second Reading, with one of the most disgraceful pre-packs of all time. A connected part of a business was crushed in order to eliminate the full suppliers, and it isolated a particular business rather than the whole enterprise. It will be important for the Minister to give us some reassurance that the definition of a company does not allow businesses to game the system, or allow some form of recourse or interpretation that makes that possible.
Lord Hope of Craighead (CB) [V]
My Lords, I will speak to Amendment 4 on the Marshalled List, which is in my name.
The context for what I propose is to be found in new Section A8, which requires the monitor, as soon as reasonably practicable after the moratorium comes into force, to notify every creditor of the company of whose claim he is aware, giving notice of when the moratorium came into force and when it will come to an end. The importance of this duty is highlighted by the fact that the monitor commits an offence if he fails without a reasonable excuse to comply with it. That is as it should be, as the creditors need to know about the moratorium as soon as possible, because it has such an obvious effect on them and their interests. Their right to recover the debt is effectively frozen for the duration of the moratorium. That may have significant adverse effects, which may need to be provided for urgently to avoid the creditors’ financial embarrassment. But the monitor’s duty to notify the creditors extends only to those of whose claims he is aware. There is no suggestion anywhere in the Bill, so far as I can see, that the monitor is under a duty to make inquiries. Therefore, the provision, as it stands, is a rather weak protection for the creditors, whose interests will inevitably be disadvantaged by the moratorium, against which they are being given no right to object.
In that context, I am proposing an addition to the list of relevant documents in new Section A6. These are the documents that must accompany the directors’ application for a moratorium. The amendment seeks to add to the definition of “the relevant documents” in Section A6(1) a list by the directors of all known creditors of the company. The aim of the amendment is to ensure that the monitor has access to this information as soon as possible. That is because he really does need it, if the performance of his duty to notify is to be effective for the protection of the creditors. The directors are, of course, in a much better position to say who the creditors are than the monitor, who is a newcomer to its affairs. Adding this list to the definition will greatly strengthen the effectiveness of the duty to notify in new Section A8. It will enable the performance by the monitor of his duty to notify to be much more effectively scrutinised, and enforced, if necessary, than it would be if all that can be done is to rely on what he happens to be “aware” of.
I should explain that the need for a provision of this kind was drawn to my attention by the Law Society of England and Wales. The wording of it has its support, and I invite the Minister to look at it very carefully. I appreciate, of course, the pressure the Minister is under to get the Bill through as soon as possible, and that the time he may need to get clearance for any amendments to it is also very limited. I would therefore be content if the Minister would give an assurance that he will indeed look at this matter and at the gap in the creditors’ protection that it exposes, perhaps with a view to an amendment by regulation under the power provided by Clause 18(1)(a), as R3 suggests, once the way these measures are working out in practice has been tested in the marketplace.
The Deputy Chairman of Committees
I understand that the noble Lord, Lord Lennie, does not wish to speak, so I call the noble Lord, Lord Hodgson of Astley Abbotts.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I have Amendments 8, 21 and 42 in this group. I remind your Lordships’ House of my entry in the register of interests.
The amendments are of a practical nature and are drawn from my experience as an investor in and director of private equity funds and small companies over many years. Before I turn to them, I will just repeat to the Minister how unsatisfactory is the way the Bill is being dealt with. We are mixing coronavirus amendments —which we all understand have to happen quickly—with permanent changes to our insolvency law, and this is a rushed job that may well rebound to cause more trouble for the Government than they like. The reason I want to repeat the points that I made at Second Reading is that since that debate on a Bill littered with Henry VIII clauses took place, we have had a report from the Delegated Powers and Regulatory Reform Committee. I do not think I have ever read a report that is quite so critical of a Bill. I have to say to my noble friend that if Members of your Lordships’ House are inclined to push amendments to restrict those Henry VIII clauses today or at future date, I shall feel obliged to support them, because we have a very bad mix here.
The purpose of Amendment 8 is to facilitate and encourage the use of moratoriums. Events leading to a company’s collapse proceed at two speeds. It first happens at a slow speed, while the directors think, hope and pray that something will turn up—that a contract will be won, some money will come in, or an investor will appear. Inevitably, when Mr Micawber does not turn up, things have to move very quickly indeed. Then, if they decide to appoint a monitor, the time for him to make his decision is very limited indeed. As we know from the wording of the Bill, he has to make a statement that it is likely that a moratorium would result in the rescue of the company as a going concern.
The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
Lord Hendy? No? Then I call the noble Baroness, Lady Kramer. We will then try to get the noble Lord, Lord Hendy.
Baroness Kramer (LD) [V]
My Lords, I will speak to Amendment 22 in my name and that of my noble friend Lord Fox. I will also make a few comments on Amendments 25 and 40, to which I have added my name.
Amendment 22 seeks to achieve fairness for small entities which are creditors to a company entering a moratorium. Most small entities are very vulnerable if a major customer fails to pay on time. They do not have the volume of other customers to offset cash-flow problems; even in the good times nearly all of them find it very difficult to borrow from banks to cover cash flow, never mind in a situation where a major customer is entering a moratorium or, potentially, insolvency. So Amendment 22 adds these small entities to a list of priority creditors that are not subject to the moratorium delays. I would point out that the moratorium, while initially about 20 days, could stretch on to a year and beyond, so this is absolutely critical for small suppliers.
The second part of the same amendment—I admit that the language is extremely clumsy—deals with the problem that small entities are often strong-armed by their large customers into accepting excessively long payment terms compared to those that a large supplier would insist on. I spoke at Second Reading about the failure of many large companies to make prompt payment to small suppliers; the numbers are quite shocking. What I am attempting to do here is to right this underlying wrong by deeming that any payment due to any small supplier be treated as if, from the first day, it was an agreement for payment within 30 days, regardless of what is actually down on the piece of paper. In a sense, I am trying to move small companies on to an equal footing with the large suppliers to the company that is entering the moratorium, so it is two different ways. I hope that the Minister in replying will talk about this problem for small suppliers; it is very different in character to the problems for a big supplier who has many other customers, very good banking relationships and, potentially, access to the capital markets.
As I said, I have also added my name to Amendments 25 and 40. The noble Baroness, Lady Altmann, made the key points here, and I just want to reinforce them slightly. Indeed, the noble Lord, Lord Hodgson, in describing the behaviour of banks when speaking to Amendment 21, was in a sense also describing the kind of behaviour that one could anticipate that is relevant to Amendments 25 and 40.
Banks understand very well how to improve their position in a moratorium; it is quite possible to gain advantage by shaping the terms that are attached to new borrowings that take place from a bank during the moratorium—those are almost inevitable if a company is to keep functioning—and potentially to build into those new arrangements a mechanism that affects the acceleration of other payments and that levies fees and interest rates that are essentially well above market. This is, in a sense, another way of drawing more money out of the company ahead of other players. It is a way of gaming the system. I note that R3, the insolvency trade body, has written in support of the purpose of these amendments, so this is not paranoia on my part. I am a former banker and I know very well how I would have been encouraged to handle a situation like this; it is a much more broadly recognised problem. Again, I hope that we will hear from the Minister on this issue.
Lord Hendy (Lab) [V]
My Lords, in speaking to Amendments 83 to 86, I will begin with an introduction and then make two points, which will also shorten my contributions to amendments in later groups. The Government rightly foresee that, in consequence of the pandemic, many companies will run into or are already in financial difficulty. Companies become insolvent all the time; we all know the fates of Woolworths, Bernard Matthews, Mothercare, Thomas Cook, Wrightbus, Jamie’s Italian, Carillion, Flybe and many more. There were 17,196 company insolvencies in 2019 alone, but Covid-19 will make it worse.
Hundreds of thousands of workers are directly engaged by the companies in danger. There are hundreds of thousands more in their supply chains. Many will find themselves among the 2 million unemployed workers estimated by the Office for Budget Responsibility to join the 1.36 million unemployed before lockdown—a total of 3.36 million unemployed: a catastrophe. Not only are livelihoods at risk, but the terms and conditions, and the pensions, of those whose jobs are saved are also at risk. We have already seen this in companies that are not insolvent: pay cuts of 10% at the Daily Mirror; of 20% at BAM Construct; of 20% at Ryanair, with a loss of possibly 3,000 jobs; and up to 60% at British Airways, with 12,000 jobs to go.
There can be no doubt that the opportunities offered by the Bill, though generally welcome, will be utilised, as in Chapter 11 proceedings in the USA, to scrap jobs, cut pay and dump pension liabilities. I understand that the Minister has recognised the risk to pensions, yet the remarkable fact remains—and this is the first of my two points—that, in the 234 pages of the Bill, the workers, even those directly engaged, are not mentioned. They are at risk, but not protected.
Most strikingly, the Bill provides no requirement for workers and their representatives to be involved in the decisions that follow the recognition that a company is in financial difficulty and the consequences of such decisions—decisions that are profoundly likely to affect their futures. In the other place, it was said that, in court approval for restructures, the court will have regard to the workers and pensioners in its duty to ensure that the outcome is just and equitable. That will not wash. There is no duty to have regard to the interests of workers and pensioners, and no provision requiring workers or pensioners to be represented in or heard by the court.
It is true that Section 172(1)(b) of the Companies Act provides that among the considerations that directors must take into account are the interests of the employees. But the directors are not obliged to ask them for their views or discuss with them the possible consequences of an application under the Bill. Still less is there any requirement to bargain collectively over these matters. Directors commonly ignore the interests of workers when a company is in financial difficulty. Often, the workers first learn that the company has gone into liquidation on the TV, well after all key decisions have been taken—for example, at Carillion, or Flybe earlier this year.
Section 188 of the Trade Union and Labour Relations (Consolidation) Act requires consultation before redundancy. We know that too often, that does not happen, even where administrators have been appointed. It is often cheaper to liquidate the company than to keep it going while consultation takes place. In the administration of Woolworths, £67.8 million was paid in compensation for failure to consult. For Comet, it was £26 million. But the companies, directors and administrators that choose to break the law by not consulting do not pay. Where there are insufficient funds, the burden falls on the taxpayer, under Part XI of the Employment Rights Act, by which the National Insurance Fund pays—capped at £538 a week—up to eight weeks’ unpaid wages, wages in lieu of statutory notice, holiday pay and basic awards for unfair dismissal. Why does the taxpayer pay? Insolvency law distributes the risk of economic failure in a grossly unfair manner.
Lord Leigh of Hurley (Con) [V]
I will speak to Amendments 12, 13, 17, 18, 30 and 31, all of which are mine. Essentially, they make the same point, but I had to table several amendments to the Bill to cover it. The point is to allow an extension of the moratorium where the rescue of the business, as opposed to the company, is likely. I draw the attention of your Lordship’s House to my register of interests, which includes being deputy chairman of finnCap, a stockbroker, and senior partner of Cavendish Corporate Finance, which specialises in selling businesses. Unusually, I am speaking to an area in which I have some limited expertise, particularly in selling businesses.
I add to the remarks of the noble Lord, Lord Hendy, that private equity firms, banks and others do spread their risk, and insolvency is a devastating experience for the owner of a business, who may have spent years building it up and invested all their family wealth into it. They too need as much protection as possible.
At the moment, there is constant reference throughout the Bill to “the company”, but frequently, if not in the vast majority of cases, the actual limited company, or plc company, will not survive—there is simply no possibility—and there will be no return to the shareholders or equity at all. However, the actual business itself might well survive. For example, in the retail sector, many businesses trade from shops. The companies that have the leases with the landlords will disappear, but the businesses trading in those shops will, hopefully, carry on. Typically, they may be sold to a third party but, to do that, the directors or monitor will need time to negotiate a transaction that preserves the business and the jobs. I thank the noble Lord, Lord Mendelsohn, for inviting me to amplify the amendments, but what they are saying is pretty simple. In many instances, the business that is owned by the company is viable and likely to carry on, but there is no chance of the company so doing. The amendments in my name seek to address this.
Amendments 12 and 13 refer to the situation where a director wants to extend the moratorium with creditor consent, and Amendments 17 and 18 to where the directors apply to the courts. I share the concern of other noble Lords that the courts are going to be very busy as a result of the Bill, and I hope that sufficient resources will be given to them. Again, where the directors apply to the courts, the courts will see that the business may well carry on, even if the company is not able so to do. This will then allow the courts to instruct the directors to carry on the moratorium.
Amendments 30 and 31 refer to the circumstances where the monitor is in charge. I will make a few comments about the monitor in a minute. The Bill states that
“the moratorium is no longer likely to result in the rescue of the company as a going concern”.
This ignores the possibility that the business might well be rescued as a going concern. It is particularly important that the monitor is a person who is able to see that viability and implement it. It would be tragic if the moratorium ends for all the wrong reasons.
I support the noble Lords, Lord Stevenson and Lord Hodgson of Astley Abbotts, in emphasising the importance of who the monitor is. The noble Lord, Lord Stevenson, quite rightly made the point that it need not necessarily be a chartered accountant or an insolvency practitioner. It would be great if the legislation allowed the flexibility for a turnaround professional to be appointed as a monitor, albeit with the appropriate protections, as they really do know what they are talking about in enabling a business to carry on afterwards. The story from the noble Lord, Lord Hodgson, about the investigating accountants telling the directors that they would be back on Monday to carry out receivership is chillingly true; I have seen it in practice. I have also seen much better examples, where the investigating accountants have been told by the bank that under no circumstances will they be appointed as the receiver, or in our case monitor. So they are truly independent and are working to try to ensure that the business carries on, as opposed investigative accountants being appointed, who know that they might be appointed as the receiver, with subsequent huge professional fees.
It is vital that we try to ensure that the monitor is independent not just at the time of appointment, as these amendments suggest, but subsequently, and is not appointed as a receiver without proper investigation that their actions have been in the interests of the business. I will not amplify this point any more but will simply quote from the Insolvency Practitioners Association, which has said:
“Expanding the definition”,
as I have suggested,
“will enable monitors to more broadly assist businesses, working with their owners, stakeholders and directors to give them a greater opportunity to survive the economic strictures of Covid-19 responses”—
which is the purpose of the Bill. Without the amendments I have tabled, the Bill will be heavily emasculated.
Baroness Meacher (CB) [V]
My Lords, I thank the noble Lord, Lord Vaux, for his detailed amendment to Clause 12, and support it most strongly. I apologise to the Committee; I must be responsible for the fact that I am listed ahead of the noble Lord, Lord Vaux, who will move his amendment, but I hope that my brief comments will nevertheless make sense. As it stands, Clause 12 interferes in an unacceptable way in the commercial activities between companies. By restricting the ability of suppliers of goods and services to terminate contracts with a company that has entered a relevant insolvency procedure, the clause puts the viability of supplier companies in jeopardy, particularly if they are small, as other noble Lords have mentioned, or if their client company represents a substantial percentage of their sales.
Along with the noble Lord, Lord Vaux, I am particularly concerned about the provision in Clause 12 to allow the Secretary of State to remove exclusions in Schedule 4ZZA using subordinate legislation. As the Bill stands, small companies are excluded from the restrictions on supplier companies, so they can, at the moment, terminate their contract to supply goods and services to a client company when it enters relevant insolvency procedures. This is surely absolutely essential if we are to encourage new entrants to the supply sector and if we are not to threaten the future of small companies. As I understand it, the amendment in the name of the noble Lord, Lord Vaux, would permanently protect small companies from the effects of Clause 12.
Another control over supplier companies is the restriction preventing them from requiring payment of outstanding charges as a condition of continued supply. Such a restriction surely also risks the financial viability of the supplier. I question the morality of a Government interfering in the marketplace to protect one company, apparently at the expense of others. Will the Minister explain how the Government justify the different treatment of companies involved in insolvency proceedings and their suppliers? Why do the Government appear unconcerned about the future of supplier companies? I agree with the noble Lord, Lord Hodgson, that a major problem with the Bill is that it combines understandable emergency measures to deal with the Covid crisis with permanent Henry VIII powers. This has been the matter of most concern to the Delegated Powers Committee, of which I am a member.
In conclusion, I hope that the Minister will accept the amendment in the name of the noble Lord, Lord Vaux. If not, I hope that the noble Lord will bring it back on Report.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I declare my interests in the register as a company director. There are many good amendments in this group that I support, but I will limit my speech to the ones in my name, relating to creditor priorities and to review, and to a couple related to them. The background to Amendments 25 and 40 is the same as that already raised by the noble Lord, Lord Hodgson, and the noble Baroness, Lady Kramer. The position of financial institutions is uniquely privileged in that they will inevitably continue to be involved but they are not bound by the same conditions of moratorium as others who must continue to supply. They are not bound to normal supply terms or the ipso facto clause, and are free to accelerate and increase their demands, achieving elevation to both the amount and priority of their lending.
As well as the issue of priority, enhanced charges and advancement extract funds from the company, which is counterproductive to the very rescue that is the purpose of the moratorium. The effect of both those possibilities would be to leave unsecured creditors and, notably, pension deficits in a worse position in a subsequent insolvency. Put together, the two effects make the price of the moratorium too high, and the financial institution behaviour pattern is compelled to happen.
I do not need to remind the Committee that the operation of banks is not geared towards benevolence. I wish they had that in their articles but they do not; they are geared towards maintaining their own capital and their own profit, which is encouraged by bonuses and regulation. There have been some appalling examples of banks squeezing SMEs, for example as elaborated in the FCA’s report on RBS’s Global Restructuring Group, which this House debated last June. It is clear from that FCA report that there is no desire to interfere in contractual terms.
Baroness McIntosh of Pickering (Con) [V]
My Lords, I will address Amendments 1, 2, 4, 8, 28 and 42, as they clarify the role of the monitor and include safeguards on that role while ensuring its independence, which was the theme that I spoke to at Second Reading. We are obliged to the Minister and the department for bringing forward the Bill and we do not seek to delay it, but to strengthen its provisions. The aim of the Bill is clearly to support a company rescue. These amendments would strengthen the role and independence of the monitor. I emphasise the gaps that were addressed at Second Reading.
Amendments 1 and 2 to Clause 1, in the name of the noble Lord, Lord Stevenson, go right to the heart of what the role of the monitor should be. Its role is not to displace the existing management but to monitor company affairs during the moratorium, with the purpose of ensuring that in the view of the monitor the moratorium would be likely to lead to a rescue of the company as a going concern. These amendments, and the others I have referred to, would help the monitor by putting him in a stronger position. We must not detract from the fact that if at any stage during the moratorium the monitor believes that the rescue of the company as a going concern is not likely, the monitor must bring that moratorium to an end. Amendments 1 and 2, along with Amendment 4, in the name of the noble and learned Lord, Lord Hope of Craighead, address these points. Providing this list would actually save time in the long term.
A noble Lord spoke to the amendment about extending the time of the moratorium. Will my noble friend the Minister consider, when he responds to these amendments, whether this would add to or reduce the overall cost of the moratorium?
Amendment 8, together with Amendments 28 and 42 in the names of my noble friend Lord Hodgson and the noble Lord, Lord Palmer, further strengthen the role of the monitor. They could help to facilitate the rescue of the company and reduce the period of the moratorium. What is of interest, and key to these amendments, is that they were identified at Second Reading. I hope that my noble friend might look with approval on these amendments, which seem to meet with the approval of industry and the Law Society for England. There does not seem to be any view within the industry that they would do anything other than enhance the Bill.
I have to confess to having some sympathy with the remarks of my noble friend Lord Hodgson about any referral to, and reliance upon, Henry VIII powers. In my view, it is always preferable to address these issues in the Bill rather than leaving too much leeway to regulations that may be interpreted rather loosely and put more onus on the monitor and the courts in the long term. With those few remarks, I hope that my noble friend the Minister will look favourably on all these amendments.
Lord Palmer of Childs Hill (LD) [V]
My Lords, my Amendment 28 is on the definition of the role of the monitor. It also ties in with Amendments 1 and 2, referred to by other noble Lords. I declare an interest as a fellow of the Institute of Chartered Accountants.
There is concern among many fellow noble Lords about the lack of supporting information about the monitor. The monitor is an individual, as is a liquidator; in other words, this is not an appointment of a partnership or a limited company. Can the Minister address what the situation could be in the real world outside your Lordships’ Chamber? It seems that a firm of accountants or one of its partners, referred to by the noble Lord, Lord Stevenson, in Amendment 1, could be consultants to a troubled company; at the same time, the firm could be auditors to the same troubled company; now, it can be appointed monitor to the same entity; and, ultimately, if matters go downhill, the same firm or a member of it can be appointed liquidator. Can the Minister reassure the Committee that these fears of cross-contamination are to be addressed? The noble Lord, Lord Hodgson, gave a graphic example, and there are many others which many of us have experienced in business.
Amendment 2, also in the name of the noble Lord, Lord Stevenson, calls for the monitor’s independence from the company. I agree with that, but he or she surely needs also to be independent of the group of companies and the directors, not mentioned in the Bill.
I raised at Second Reading that the monitor—a newish concept—will, unlike a liquidator, not have control of the company’s assets. Can the Minister clarify what research has been done on what insurance cover is available to a monitor, who has no control of the assets?
Amendment 4, in the name of the noble and learned Lord, Lord Hope, calls for a list of creditors, which I heartily support, but this should also include potential debts hiding in the undergrowth, such as the cost of dilapidations. Is the Minister able to address the creditor who is the elephant in the room? I refer to the preferential status to be given under the Finance Act to HMRC for VAT. I understand that the argument is that the company has collected this and needs to hand it over, but is there not a similarity with the supplier of widgets essential to the business who is destined to be below the salt in the list of creditors requested in the amendment?
The noble Lord, Lord Leigh, raised much the same question as I raised at Second Reading, about the actual business as distinct from the company. There seems to be no recognition in the Bill that a business or the components of a business could be rescued. I am not sure that a monitor will help in that process. My noble friend Lady Bowles said that, in effect, the appointment may do more harm than good—it may do more good than harm; I do not know—but, as she so ably said, it is clearly a work in progress and not completely worked out. We look to the Minister and the Government to fill in the blanks before we feel easy about the Bill before us.
Lord Hain (Lab) [V]
My Lords, Amendments 83 to 86 are in my name and those of my noble friends Lord Hendy—who spoke so powerfully and compellingly earlier—and Lord Monks. Under them, companies would be excluded from moratoriums for not paying tax, for unpaid remuneration to employees and for breaching sex equality or equal pay.
The amendments are about setting standards with which firms in financial difficulty and seeking state support to stave off insolvency must comply. They aim to ensure that the interests of workers are not sacrificed in a blind rush to shore up businesses facing acute short-term financial pressures.
Baroness Burt of Solihull (LD) [V]
My Lords, I will speak briefly to Amendment 6, but I associate myself with the comments of my noble friends Lady Kramer, Lady Bowles and Lord Palmer. Amendment 6 in the name of the noble Lord, Lord Stevenson, to which I have added my name, concerns the threshold that a monitor must believe has been met for a moratorium to be suitable for a company.
Changing “would” to “could” seems on paper to be very small change to such a significant piece of legislation. However, given the relatively short timeframe within which the monitor must satisfy themselves that this criterion has been met, not to mention the difficulties in gathering all the relevant facts regarding the company’s trading, lending and general financial arrangements, it is likely that the cost of doing so will be significant. Under the current threshold these costs could be so high as to prevent the moratorium being used, which is obviously the opposite of what we all want to achieve. This slightly less definitive word could make a significant difference on a practical, working basis. I encourage the Minister to consider seriously this small but significant change.
Lord Vaux of Harrowden (CB) [V]
My Lords, I declare my interest as a chartered accountant. I start by associating myself with the comments of the noble Lord, Lord Hodgson of Astley Abbotts, and other noble Lords about the rushed nature of this Bill. This would be appropriate if it contained only emergency measures, but the Bill introduces important and permanent changes, and the number of amendments we are discussing today rather demonstrates that concern. I thank the noble Baroness, Lady Meacher, for her support for my Amendment 51 to Clause 12. It is to be debated in a later group so I shall speak to it then, but I am grateful to her.
I want to add my support to a number of amendments in this group, and I apologise for having missed the deadline to add my name to them. It is a rather diverse group, so I shall try to sub-group my comments by subject area. I turn first to Amendment 2, in the name of the noble Lord, Lord Stevenson of Balmacara, and Amendment 42, in the name of the noble Lord, Lord Hodgson of Astley Abbotts. Amendment 2 simply makes independence a qualification of the monitor, while Amendment 42 says that the monitor “must satisfy himself” that he is
“free of conflicts of interest”.
These really should go without saying.
The Government seem to be arguing that because insolvency practitioners are professionals, they will do this anyway. I confess that I have a healthy scepticism about the insolvency industry, which has a substantial ambulance-chasing component to it. Conflicts are common- place, and we have been given some good examples by the noble Lord, Lord Hodgson, and the noble Lord, Lord Leigh of Hurley. Making independence a legal requirement in the Bill would seem to be an extremely good thing, and it is hard to see any downside to that.
Secondly, I add my support to Amendment 4, proposed by my noble and learned friend Lord Hope of Craighead. This would simply add a list of creditors to the list of relevant documents that must be provided to the court when applying for a moratorium. This would be a simple and practical way of assisting the monitor to do his job, and in particular, to notify the creditors without delay. It is hard to see any downside to this and really it should be accepted.
Finally, I support Amendment 21, in the name of the noble Lord, Lord Hodgson, and Amendments 25 and 40, in the name of the noble Baroness, Lady Bowles of Berkhamsted. The amendments seek to prevent banks gaming the process by changing the terms of payments and costs during the term of the moratorium. It must make sense to ensure that banks, which will have all the negotiating strength in these situations, are not able to give themselves preferential terms, and so I urge the Minister to consider this matter seriously.
Lord Adonis (Lab) [V]
My Lords, I thought that the noble Lord, Lord Hodgson, made two very powerful remarks earlier in the debate when he said that this Bill seeks to do two separate things. The first is to introduce the emergency provisions in respect of the crisis we are in, and the second is making permanent changes to insolvency law. He also drew attention to the absolutely devastating report on the Bill by the Delegated Powers and Regulatory Reform Committee, which highlights a wider set of Henry VIII clauses than I have ever seen in a Bill of this kind, including the whole definition of which companies are affected by it under new Schedule ZA1, which can be changed by the Government by order, without any primary legislation. I am sure that we will want to return to that.
Even more extraordinary is the Government’s justification for why they have included all these Henry VIII powers, which is
“the undesirability of taking up Parliament’s time unnecessarily.”
Surely it is the job of Parliament to decide whether its time is being taken up unnecessarily, not that of the Government. I draw the particular attention of the Committee to paragraph 8 of the Delegated Powers and Regulatory Reform Committee report, which states:
“In our view, the presumption should be that where something needs changing which Parliament has enacted, Parliament should enact the changes by primary legislation rather than ministers make the changes by secondary legislation.”
That points the way to a number of key amendments that need to be made on Report.
Turning to this group of amendments, it suffers from exactly the same problem that the noble Lord, Lord Hodgson, said the Bill suffers from, which is that it puts together a whole lot of separate things that do not actually go together. Over the past hour and a half, we have debated three completely separate matters: the issue of the independence of the monitor, which is hugely important—my noble friend Lord Stevenson’s amendments in that regard are utterly compelling—along with the issue of wider conflicts of interest in the whole handling of the moratorium arrangements and the people who play a part in them, which again is a wider and separate issue. The third issue, which has been covered comprehensively by my noble friends Lord Hendy and Lord Hain, is the hugely important matter of consultation with the workforce and the priority to be given to employees and workers in these moratorium arrangements and anything that might follow from them. I hope that in his reply, the Minister will be able to pay substantial attention to all three of these areas.
I do not want to go over ground that has already been covered by my noble friends, but I would like to ask the Minister one specific question. In the early stages of the coronavirus crisis, the Government made great virtue of the fact that they were consulting employee organisations, trade unions and the TUC in order to create a consensus on the kinds of measures which would be needed to deal with it. Indeed, in the construction of the furlough scheme, the Chancellor of the Exchequer made great play of the fact that he had been talking to the general secretary of the TUC, Frances O’Grady. It is quite clear that there are concerns among trade unions about the whole way that these provisions will cut across established insolvency provisions and redundancy provisions. Therefore, I want to ask the Minister a specific question—or rather, two related questions.
First, what representations have been made to the Government about the role of employees and their interests in this Bill? Secondly, can he tell us whether he personally or any of his ministerial colleagues have met the TUC general secretary or officials from the TUC to discuss these provisions? I ask that because if we are seeking to proceed by consensus, by the time we get to Report, we will want to know what actual discussions have taken place with representatives of employees and whether we can satisfy ourselves that there has been adequate consultation. If not, the arguments made by my noble friends Lord Hain and Lord Hendy are compelling when it comes to amendments that we will need to make on Report.
Viscount Trenchard (Con)
My Lords, as other noble Lords have mentioned, this Bill is an unusual combination of Covid-related measures that clearly need to be fast-tracked, along with measures to implement the long-held belief that we need an equivalent to the Chapter 11 procedures of the United States.
I do not think that a hybrid House is particularly well suited to scrutinising legislation, especially in Committee. I do not think we will be able to say that this is working well. We are making the best of a difficult situation but it only goes to show that in order to scrutinise the Government’s legislation properly, we need to get back to the proper House as soon as we can.
The only good point I might mention is that, for the first time since we went to Virtual Proceedings, in this Committee we have no time limits. It is so nice and such a relief that we do not have my noble friend the Minister turning round to scowl at us as soon as we have gone 10 seconds over the prescribed one minute or two minutes.
Amendment 1, in the name of the noble Lord, Lord Stevenson, seeks to narrow the definition of persons entitled to be appointed as monitors from “a qualified person” to qualified accountants. I would not support this narrow definition because it may be too restrictive, especially for small enterprises. A monitor should be someone with a professional qualification, issued by a body whose members are carrying on a relevant regulated activity.
I agree with Amendment 2, in the names of the noble Lord, Lord Stevenson, and my noble friend Lady Altmann. It is important that the monitor should be capable of independence and objectivity. The current IESBA—International Ethics Standards Board for Accountants—code of ethics definition of “independence” explains it as being made up of two elements: independence of mind and independence of appearance. The former is defined to include integrity, objectivity and scepticism. The latter is defined as being free from facts and circumstances that would lead
“a reasonable and informed third party”
to conclude that integrity, objectivity or scepticism was compromised.
I ask the noble Lord, or my noble friend, to confirm which definition of independence they would apply and whether it should be a strict, rules-based one, comprising a list of prohibitions of those related by blood, marriage, shareholding, et cetera, or a looser one, based on principles and objectivity. I hope that a sufficiently robust definition of independence could be included, so as to render unnecessary Amendment 42, in the names of my noble friends Lord Hodgson of Astley Abbotts and Lady Altmann, which seeks to ensure that a monitor should not be exposed to any possible conflicts of interest.
As precise amounts can be difficult to assess, I support Amendment 4, in the name of the noble and learned Lord, Lord Hope of Craighead, rather than Amendment 3, in the name of the noble Lord, Lord Mendelsohn. However, I agree that some kind of document showing the number of a company’s creditors would be useful to the court in making a decision on granting a moratorium. As explained by the noble and learned Lord, Lord Hope, that would assist the monitor in his or her duty to notify every creditor.
The noble Lord, Lord Stevenson, makes a case in Amendment 10 for the extension of the initial period in relation to a moratorium from 20 to 30 business days; this means six weeks, rather than four. I think that 20 days should be enough, even for small companies. Obviously, it will not be enough time for a complex restructuring, but that is not the purpose of a moratorium as introduced in this Bill.
I support Amendments 12, 13, 17, 18, 30 and 31, as proposed by my noble friend Lord Leigh of Hurley. Like my noble friend, I also have spent more than 30 years as an investment banker, much of it doing mergers and acquisition business. Like him, I know just a little bit about this. In the case of companies which have both viable businesses and non-viable businesses, it may be that to rescue one or more of a company’s businesses is sensible in cases where a rescue of a whole company may not be realistic. Does my noble friend not therefore agree that his amendments would be improved further if, after “company”, they sought to insert, “or the whole, or some part, of the company’s business”? I understand that this issue was much discussed at the time of the Enterprise Act 2002. There are of course very many companies which contain only one, or one substantive, business. But surely, in other cases, it is the rescue of a business, as opposed to the rescue of a company as a legal entity, that is important.
I also support Amendment 27 in the name of my noble friend Lady Altmann. Where an asset has been pledged to a company’s defined benefit pension scheme, it should not be within the powers of the court to release it for sale without the consent of the pension protection fund, as well as, surely, the trustees of the pension fund itself.
Lord Liddle (Lab)
My Lords, I would like to make three points—briefly, I hope. The first is a point of process. It would be nice if the Minister acknowledged that this is clearly not a normal Committee stage. We are grouping different subjects in a way that we would not do normally, because of the urgency of the Bill. Given that we are moving to a critical economic situation, I accept that urgency, but this is not a normal way of proceeding. As the noble Viscount, Lord Trenchard, and the noble Lord, Lord Hodgson, have just said, the Government are trying to deal with the situation by mixing things that are required for the immediate economic urgency with longer-term reforms, and, at the same time, trying to deal with the uncertainties of what they will face by including lots of Henry VIII powers in the Bill.
This is a classic example of where effective post-legislative scrutiny is needed. We should have a committee to look at how the Bill is implemented, and to bring forward proposals for reform after six months, or a year, or whatever seems reasonable. My first point is that this is not satisfactory, and we need a process of post-legislative scrutiny.
Secondly, I am not an insolvency practitioner and I have never had to deal with anything insolvent. However, I am greatly interested in questions of industrial policy. Prior to the Labour Government coming to power in 1997, I read a lot of academic pieces about our bankruptcy and corporate insolvency provisions which suggested that our law was much tougher than that of the United States, and, as a result, was a barrier to the entrepreneurship that all sides of this House want to see flourish in this country. Indeed, the Labour Government went on to reform the bankruptcy and insolvency laws.
There is of course always a tension in this. The introduction of something equivalent to the US Chapter 11 has also led to abuses, and we have all seen instances of companies going insolvent, where, on the face of it, it looks as though their boards have behaved with a great deal of irresponsibility. It would be nice, therefore, to have a statement from the Government on what they think the responsibilities are to be of the monitor that is being introduced. In whose interests will the monitor be acting? What is the public interest in these legal reforms? This is not a matter for legislation, but rather for a major speech by Ministers, which would then be taken into account in subsequent interpretation of the legislation by the courts. As someone said, I am sure that there will be a lot of that.
On my final point, I have of course a lot of sympathy with my Labour colleagues who have pointed out that the trade unions, workers and employees have not had a fair deal in these matters in the past. I would like to see their rights strengthened in this legislation, but there has to be a balance. One of the most disastrous experiences of a crisis happened in the coal industry in 1926, when the union position of “Not a penny off the pay, not a minute on the day” led to a human tragedy of awful proportions in Britain. To save their company, the workers may be prepared to make sacrifices, but their position needs to be strengthened. Again, I would like from the Government a high-level political statement to say that they accept that our culture of capitalism has to change, that we have to move in a more partnership- driven direction, and that when dealing with the details of things such as insolvency law, we should try to reflect in legislation the need for a balanced set of rights and obligations.
I must apologise to the Minister: I have another engagement, which may mean that I will not hear his reply at the end of this discussion. I will, however, be coming back to the Committee as soon as I can.
Lord Balfe (Con) [V]
My Lords, I begin by endorsing what the noble Viscount, Lord Trenchard, said about the way we are conducting this. We are in a very unusual time, I accept, but I hope that as soon as possible we will get back to a normal House and a normal way of dealing with Committee stages—and with everything else, for that matter.
My second point is for the Minister, who of course comes from the north-east—not a traditional Conservative area, but one that has always had a strong Conservative vote. As we move forward, one thing we need to remember is that the last Labour Government was not exactly the best thing that trade unionism ever saw. They did basically nothing that the Conservatives wanted to repeal when they came in. I ask the Minister to remember that some of the great social legislation of Britain was actually passed by the much-reviled Neville Chamberlain when he was Minister for Local Government and Chancellor of the Exchequer in the 1920s and 1930s: such things as wage councils and some basic rights. The way Stanley Baldwin handled the aftermath of the General Strike contributed tremendously to the fact that the Conservative Party ran Britain for two-thirds of the last century and is well on the way to achieving that again. I make that point in beginning.
My next point is that insolvency is a sad necessity—in a capitalist economy companies go up and down—but it is as much a sad necessity for the workers as it is for the people who own the company, and we should never forget that. The workers in any industry do not go home at night thinking, “My company does not matter”; they are often devoted servants and they are as hard-hit by insolvency as anyone else. I ask the Minister to remember that, as we move forward into the 21st century, we may well need to rewrite the historic deal between the working people and the state in the same way that we did 100 years ago. As such, I will not endorse all these amendments, but I am particularly interested in Amendment 84 tabled by the noble Lord, Lord Hendy, and supported by the noble Lord, Lord Hain, on unpaid remuneration for workers.
One of the great tragedies and wrongs of recent events has been that workers—Thomas Cook is a good example—can put in a month’s work, suddenly their company goes bankrupt and they do not even get the three weeks’ wages for which they have just worked. I ask the Government not necessarily to accept Amendment 84 but to look at a way at least to prioritise the fact that if a company goes into insolvency, wages that are more or less immediately due to the workforce are paid—taken out of the present system, as I understand they are in Germany, and paid to the workers.
I also have sympathy with Amendment 27, in the name of my good noble friend Lady Altmann, which would prevent insolvency practitioners disposing of items that are pledged to a pension fund. If items are pledged, they are pledged and cannot just be taken back and sold off willy-nilly. I think the relationship between company pension funds and company assets needs to be looked at. Certainly, my noble friend’s amendment is well worthy of us having a look at to see what we can do.
I also point to something that will come up in a number of subsequent amendments, which is the need to protect pensions. Pensions are a worker’s deferred wages: it is not some bonus pot in the distance that they can have if they are lucky, but part of their remuneration. In a funny sort of way, one of the advantages of a defined contribution scheme is that at least it generally goes to the workers as it is earned, rather than being held on to by the company, but even that needs further looking at.
My final point is that I think we need to look at how the concerns of workers can be heard by the courts. Although I and many others often refer to trade unions, it is worth remembering that the trade union movement in the private sector is incredibly weak and we have to look well beyond trade unions at ways in which working people can be represented in insolvency situations. They should have some rights to be heard, and I believe that those who judge insolvencies should at least be prepared to, and be required to, listen to what they say and, in coming to their decisions, to make their reactions to their representations part of the response: in other words, workers have a right to be heard and to be responded to.
Having said these things, I welcome the legislation. There is never a right time for a Bill such as this. I have reservations about the Henry VIII powers, but I am prepared to see if this will work. Fundamentally, I think that the Minister, with his background, understand the concerns of working people, particularly working people from outside London, and I am sure that he will do his best to strengthen the Bill in the ways we are urging him to do.
Baroness Kennedy of Cradley (Lab) [V]
My Lords, I shall speak in support of Amendments 2, 42 and 5. Amendments 2 and 42 seek to make it explicit and clear to all relevant stakeholders involved in a moratorium that the monitor is expected to be independent from the company under consideration. The proposed moratorium is intended to give struggling companies breathing space to turn their businesses around and suspend, for example, a number of actions by creditors, such as chasing debts through the courts or enforcing securities, for as long as the moratorium is in force. To build confidence in the system, the monitor, who decides if the moratorium will help rescue the company, has to be independent of the company under consideration.
It is not unreasonable to assume that creditors will be worried that such a moratorium will be subject to abuse. The monitor is a safeguard in this regard, but will the monitor be able to allay creditor fears if they are perceived not to be independently minded and not to have conflicts? Having a high degree of control over which debts can be paid and which properties can be sold means independence is critical, especially as creditors can apply to courts if they disagree with these decisions. Surely, if the Bill is explicit about the monitor’s independence, it will give greater confidence to all concerned. I hope the Minister will support the intention behind the amendments and set out in his response how the Government will ensure that that independence is achieved.
Finally, I support Amendment 5 in the name of my noble friend Lord Lennie. It is right that once a company enters a restructuring process, there are mandatory talks with trade unions and those who represent employees. Having the right to be fully consulted and having access to the same information that goes to the courts will help ensure the protection of workers in the event of restructuring in an insolvency. I hope the noble Lord will address this too in his response.
Baroness Neville-Rolfe (Con) [V]
My Lords, I shall be brief. I agree with the question of the noble Lord, Lord Stevenson, about the need for clarity on timing and other issues on the moratorium. I was very interested in the comments of the noble and learned Lord, Lord Hope, on how we might proceed. I look forward to the Minister’s response on all the issues raised in this vast group, including on the interests of small business and on the notion of my noble friend Lord Leigh that we focus on businesses, and saving trading businesses, rather than on companies. I think we should listen to those with real experience of the market.
As my noble friend the Minister knows, I support the Bill and look forward to helping to get it through in a way that does not have unacceptable, perverse consequences, including addressing the concerns rightly articulated by my noble friend Lord Hodgson on the use of delegated powers.
Lord Bourne of Aberystwyth (Con) [V]
My Lords, I refer the House to my interests as published in the register. I thank the Minister for introducing this legislation, which has many valuable facets to it. I also thank the Law Society for its helpful briefing. I will particularly talk about the amendments that relate to the independence of the monitor, which are extremely important. The point has been well made that this is a simple matter to put right, and I hope that the Minister has been listening. It is clearly right that the monitor should be independent of the company. That runs to the very heart of company law.
I also very much welcome the amendment of the noble and learned Lord, Lord Hope of Craighead, relating to the provision of a list of creditors from directors for a monitor to work from. That is necessary for ensuring that the moratorium process works effectively, and deserves our backing too. I also welcome Amendments 42 and 28, which again relate to the independence of the monitor and ensuring that there are no conflicts of interest—matters that are easily put right, and I hope that we can do that.
It has been a long debate on this group of amendments so I will not detain the Committee long, but I share with my noble friend Lord Hodgson of Astley Abbotts a concern about the two different halves to this legislation. There is the half—no doubt very important—relating to insolvency procedures, which centres on the moratorium and is very welcome, and then there is the other half, which has an urgency about it and which we need to push through very quickly to protect businesses during the Covid crisis. It is as if we have two halves of different cars welded together, as might have been the case with Del Boy and Rodney in “Only Fools and Horses”, with predictable consequences. That is not to say that it cannot be put right, but we need to push through some important amendments to ensure that this works effectively. I hope that the Minister has been listening and will take on board some of the important points made as we have progressed through this group and, no doubt, as we continue throughout the other groups.
Lord Fox (LD)
My Lords, I draw noble Lords’ attention to my interests as set out in the register. The noble Lord, Lord Stevenson, in his understated way, called this a wide group of amendments and we have heard a wide and knowledgeable group of Peers speaking to it. I agree with the noble Viscount, Lord Trenchard, that we need proper scrutiny of this Bill. Whether we are here virtually or physically, cramming so many amendments into one group is symptomatic of trying to rush this Bill through. That will have unintended consequences, whether the noble Baroness, Lady Neville-Rolfe, believes it or otherwise. We are suffering from undue haste in trying to do in one day what should have been done over at least two or three days.
I will speak to a small number of amendments. On Amendment 10, the noble Lord, Lord Stevenson, queried 20 days and suggested 30 days. My question for the Minister is: why 20? What was the science and evidence that suggested that 20 was correct? The noble Lord, Lord Leigh, spoke about the courts being busy. Well, one way of relieving the courts of work would be to have a slightly longer period, because that would mean that the monitor would not have to go back to the courts so often to renew the process. Why 20 days and why not 30, or indeed some other number of days?
Amendment 2, to some extent Amendment 1 and certainly Amendment 28 ask the perfectly reasonable question of what the monitor’s role is. What is the correct qualification for the monitor? It is perfectly reasonable in a Bill such as this, with the role of monitor so central to this process, that we understand what that monitor is and who it might be. I look forward to the Minister’s comments on that.
This group, among others, contains a whole load of amendments that address what I call the creditor waterfall. Amendment 21 and, in different ways, Amendments 25 and 40, talk about the role of the banks and financial institutions and seek to restrain the advantage that those institutions can get from their special position within the creditor landscape. It is not in the Government’s interests to continue to allow these organisations the freedom of the remaining resources of a failing business. What was going through the mind of the Government when those decisions were made to set out this level of access and give financial institutions the run that they seem to get from the Bill?
My noble friends Lady Kramer and Lady Bowles and others talked about the role of small and medium-sized businesses, and Amendment 22 adds small entities to the list of those with preferential treatments. Amendments 37 and 40 call for a review after 18 months of how a moratorium is dealing with SMEs. This is an entirely different review from the other reviews that crop up on later groups. It is very much about how this is really affecting businesses. I am proud to put my name to Amendments 98 and 99, proposed by my colleague and noble friend Lady Bowles, which makes wages and salaries rank alongside continuing supplier and not below them. That seems entirely reasonable and I thought that she set that out very well.
All these issues set up the central point: the Bill is not a fully formed piece of legislation. The Government have recognised that, as my noble friend Lady Bowles pointed out, by granting themselves an almost unprecedented ability to rewrite it. They know that it is not the finished article. We will have an opportunity in later groups of amendments to discuss a better way of doing that and a way of giving Parliament the power to assess and possibly rewrite the rules, but I look forward to the Minister’s reply.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
I thank all noble Lords who have spoken in this debate. Yet again, the contributions have demonstrated the breadth of expertise that exists in this House. I must say to my noble friend Lord Trenchard that I would never scowl at him. This is entirely the job of the Whips and not my fault. While there is of course no overall time limit on speeches at Second Reading, there is an overall time limit on the debate in Committee. With that, I will address as many of the points as possible. I apologise to noble Lords if there is not enough time to address all their points, but I am happy to have individual correspondence or a meeting with anyone who does not feel that their concerns have been addressed.
The moratorium was a subject raised by many noble Lords. It is built on two pillars: that the directors believe that the company is insolvent or likely to become so, and that an insolvency practitioner thinks that the company is liable to be rescued having been in a moratorium—finances on one hand and viability on the other. The intention of the moratorium is not to make the creditors’ position worse nor to allow a company to delay an inevitable administration or liquidation. On the contrary, the intention of the moratorium is to rescue the company, and a rescue of the company will be better for creditors, better for suppliers and of course better for employees.
I say in response to the noble and learned Lord, Lord Hope, that, although I fully understand the intention behind his amendment, we are concerned that it would add another burden on to the directors of the company at a time when the company needs to enter into the procedure as quickly as possible. It has never been our intention that the moratorium should be used to “line up the ducks” for a pre-pack administration. Although they are subject to some criticism, we believe that pre-packs are a useful tool that allows businesses and jobs to be saved. However, as with all administrations, the likelihood of a substantial return to unsecured creditors is of course small.
The amendments tabled by noble Lords who seek to lower the barrier to entry into a moratorium to focus on the rescue of a company’s undertakings, rather than the company, could, in our view, lead to increased losses to creditors. The new moratorium provides protection for a company, perhaps further upstream than when administration is the only route open to it. If the company or corporate vehicle can be saved, the outcome for unsecured creditors will almost certainly be better than it would be through the form of insolvency that results in the sale of the company’s undertaking and its ultimate dissolution.
As has been said, the moratorium lasts for an initial period of 20 business days, although it can be extended relatively easily for a further 20 business days. In response to a point raised by the noble Lord, Lord Fox, and my noble friend Lord Leigh, we do not believe that it will lead to an increased burden on the courts. The moratorium is intended to be light touch as far as the court is concerned. Entry is by administrative filing, other than where overseas orders file a winding-up petition, rather than through judicial scrutiny. The courts get involved in longer moratoriums only if the monitor requires court direction or if there is a challenge to the monitor or to the directors’ actions. I hope that that resolves those issues.
Although, in my view, the amendment in the name of the noble Lord, Lord Stevenson, that seeks to permit small businesses an initial period of 30 business days is laudable, it does not appreciate the position that the company’s creditors are in. In our view, the moratorium balances creditor interests with those of the company.
The noble Lord, Lord Fox, asked why the period proposed is 20 days, and that of course is a good question. We consulted on what the period should be, and the clear view was that it should not be left for too long before creditors’ views are considered. The Government are confident that a moratorium with one extension lasting 40 business days is the right length. There is of course always a balance to be struck, and the company should seek the views of its pre-moratorium creditors on whether a moratorium should or should not continue.
A number of amendments have been tabled on the role and status of the monitor, including by my noble friend Lady Altmann, the noble Baroness, Lady Kramer, and my noble friend Lord Hodgson. It is important to say that only licensed insolvency practitioners—a highly regulated profession—are permitted to be monitors of company moratoriums. Practitioners are subject to very high ethical and professional standards. The insolvency code of ethics sets out five fundamental principles of ethics for insolvency practitioners. These include the need for objectivity and a duty not to compromise professional or business judgments because of bias or a conflict of interest. We believe that this strong regulatory framework underpins the independence of insolvency practitioners from those who appoint them.
Many of the amendments proposed by noble Lords, with good intention, seek to strengthen the independence of the monitor, but in our view they would in practice add nothing to the regulatory framework that monitors will already be subject to. Creditors benefit from strong protections. If they think that their interests have been unfairly harmed by the action, or indeed inaction, of the monitor or the directors during a moratorium, it is always open to them to challenge that behaviour in court. This specific right to challenge builds on the strong foundations of the regulatory framework.
In addition, employees are well protected. Requiring a statement from a trade union, alongside documents filed in court when a moratorium commences, as proposed by the noble Lord, Lord Lennie, would in our view add an unacceptable layer of bureaucracy. It might also risk a company’s financial problems being publicised before it is protected from creditor action, leading to unnecessary company failures. I repeat the Government’s view that the greatest support that we can give workers is to keep their businesses afloat, thereby saving their jobs.
The Deputy Chairman of Committees (Lord Bates) (Con)
I have received a request to speak after the Minister from the noble Baroness, Lady Falkner of Margravine. After the noble Baroness, we will hear a response from the Minister.
Baroness Falkner of Margravine (Non-Afl)
My Lords, for clarity, I did not request to speak after the Minister; it was due to an inadvertent error that I ended up not being on the list to speak when I should have spoken. In fact, as I am speaking after the Minister, I will use the opportunity to make one or two general observations about this process that conform to what the noble Lord, Lord Hodgson of Astley Abbotts, and the noble Viscount, Lord Trenchard, have said.
This is the second Bill in which I am involved in legislative scrutiny. The first one was when we had a virtual House, and with this one we have a hybrid House. I can only concur with everything that has been said about how a hybrid House cannot work for any kind of complex or contentious piece of legislation.
These are pieces of legislation with implications that, as several noble Lords have said, go beyond the immediate health and economic emergencies. They should not be passed by this House unless and until we have the capacity to undertake proper scrutiny. Normally, my only excuse for speaking at this point would be if the Minister had said something on which I needed further clarification; I would then have spoken before he had sat down.
The idea that one is still continuing to speak to amendments in this manner is regrettable, but there is a broader point, also raised by the noble Lords, Lord Liddle and Lord Adonis: this is complex legislation, we do not know when we will revert to normal procedures, and a vaccine may not be found. I hope that this situation does not continue for very long, but it could continue for some time. In that case, do the usual channels deal with the legislation that is pertinent to the health and economic emergency that we face in this House through these proceedings, as a necessity, and therefore, park legislation that has very long-term implications for all kinds of governance in this country, until this is over? I do not blame the Government. They are trying their best to deal with an emergency facing the country. However, I wonder whether there is some level of complicity—I use that word with care—in the usual channels, that they so comfortably settle into these extraordinary arrangements. If people were truly aware of what was happening, of how we are passing legislation and how we are conducting scrutiny, even in terms of Oral Questions, they would be quite astonished.
Turning to the Bill, I am not going to use the notes that I would have used for this speech, but there are one or two things it is important to put on the record. I declare an interest as set out in the register, concerning the Bank of England, and that I am speaking in a personal capacity on this Bill. I have already spoken about the inappropriateness of doing this in this manner in Committee, but I also want to say a word or two about fast-track legislation. I sat on the Constitution Committee when it did a report on when and how Governments should use fast-track legislation. In all candour, and with the highest regard for the Minister, there are measures in this Bill that are simply inappropriate for fast-tracking through the Chamber in this way. These longer term and permanent changes should not be discussed today.
In light of that, I completely support Amendment 37 in the names of the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, for the Secretary of State to conduct a review of the provisions for a moratorium, and to lay a report before Parliament. They indicate that the review should be done in 18 months, which is a fair timescale.
I also support Amendments 2, 4, 8, 28 and 42, in the names of the noble Lords, Lord Stevenson, Lord Palmer, Lord Fox and Lord Hodgson, the noble and learned Lord, Lord Hope, the noble Baronesses, Lady Bowles and Lady Altmann, concerning all aspects of the independence of the monitor. The danger of the Bill not making clear the separation and independence of the monitor is a perception that there was a closeness between the directors of the company and a lack of transparency for creditors. I support those amendments essentially to assist the monitor, those insolvency practitioners. I hear what the Minister says about their own regulatory framework and the onus upon them to behave in an upright manner, but as he noted in his closing remarks, there are enough safeguards built into the regulation of insolvency practitioners whereby these amendments are otiose. I argue that by having them in this Bill—which is subject to review if Amendment 37 passes on Report—if they were entirely redundant, we could do away with them in 18 months. The Secretary of State could then lay before us the report that says that these amendments are redundant. I argue that this helps the monitor at this point, and on that basis, I intend to support them on Report.
Lord Callanan
I thank the noble Baroness. I am sure she understands that her comments about the hybrid House are not a matter for me. I have responsibilities in a number of areas, but the operation of this House is not one of them, so I will allow her to take those up with those Members who are responsible. I am merely a servant and am prepared to operate in whatever way the House sees fit.
Addressing the noble Baroness’s points about the Bill, it is important to recognise that permanent provisions have not been developed just in the short time since Covid-19. Some of the temporary provisions have, but the permanent provisions were the subject of a considerable period of consultation and engagement dating back to 2015. The process included the then Government’s review of the corporate insolvency framework, a public consultation in 2016 and an extensive period of engagement since then with a wide range of stakeholders. Additionally, the Bill includes regulation-making powers to enable changes to be made as and where necessary, so there has been extensive consultation. The intention to legislate in this area was announced in 2018, but this crisis has made it imperative. The Bill offers important new flexibilities and rescue opportunities that may help many businesses to continue trading during this crisis, which I hope the whole House would agree is the ultimate objective
Lord Stevenson of Balmacara [V]
I thank all noble Lords for the huge range of points that have been brought to bear in this debate. It was inevitable, given the way that the amendments are grouped, that we would range far and wide over the Bill. It was not a repeat of the criticism at Second Reading, because we were drilling down into important areas which in other times might have been picked up for further consideration during the later stages of the Bill, but cannot be because of the short timescale we are talking about.
The Minister made only two substantial points in his response. He is going to bring forward amendments to protect the way that debts are accrued during the moratorium period. I very much look forward to seeing those—we welcome the news. There is a concern around the House about this particular area, where we step into uncharted territory with the idea of a moratorium, and we want to protect it as much as we can. More statutory-based procedures on this will be helpful.
I disagree with the Minister that workers and employees are well looked after in this Bill. The evidence does not support that. I leave it to others to judge from the contributions that were made by my noble friends Lord Hendy and Lord Hain; they made an unanswerable case for further consideration, but if it is not to be, it is not to be and we will just have to wait for another opportunity. However, the Government are well out of step here, and that is going to cause trouble further down the track.
My original amendment, which headed the group, was not the only point raised, as I made clear, but it was about an issue that picked up a lot of support. I am grateful to those who spoke in support of it, particularly those who also had amendments down which were spoken to during the debate. This is the question of how we are going to support the new position of monitor. During the debate I was alerted to the fact that the Government had published their draft guide for monitors. It is a pity that it was not available before this debate, but at least it is now. On a quick read-through, it is interesting that it is based very much on the current IP regulations, and goes so far as to suggest some formal amendments to those regulations, to allow for the role played by the monitor to be given a backing. However, it also makes it clear that these are very temporary statements by the Government, pending further work through statutory instruments, and I am sure that is right.
The Deputy Chairman of Committees
We now come to the group beginning with Amendment 7. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate. Anyone wishing to press this or any other amendment in this group to a Division should make that clear in the debate.
Amendment 7
Lord Leigh of Hurley
Lord Leigh of Hurley [V]
My Lords, this amendment is broadly similar to my earlier amendments—I am not quite sure why it is in a different group, to be honest, but so be it. It applies to the circumstances not of an extension but of an appointment of a monitor, and requires the directors to get the proposed monitor to state that it is likely that the moratorium would result in the rescue of the company as a going concern. The word “would” has been helpfully and sensibly addressed by the noble Lord, Lord Stevenson—it should be “could”—and again, the word “company” should have after it, as my amendment proposes, “or the company’s business”. I would very much like the Minister to specifically address this issue of the difference between company and business; unless I missed it, I do not think it was. If it is not possible to do so in his closing remarks, perhaps he would oblige me with a letter.
I am sure that the Minister will not be able to resist Amendment 62, in the name of the noble Lord, Lord Stevenson, as he is so confident that the courts will be able to cope. I am sure that he will find it most helpful to have a clause that requires a review of how the courts have coped. I beg to move.
Baroness Northover (LD)
I will speak to Amendments 71, 76, and 145, which are in my name and that of my noble friend Lord Fox.
These amendments all derive from the conclusions of the Delegated Powers Committee and relate to the often-unchecked powers the Government are seeking to take in the Bill. I thank that committee for its careful scrutiny of this and other Bills. As the noble Lord, Lord Hodgson, said, its report is devastating. There is clearly huge concern about the powers that the Government are proposing to take in the Bill, and most of the amendments in this group address those points. For example, the noble Lord, Lord Stevenson, by seeking to amend numerous places where the Government are taking powers, is challenging the Minister in each instance to justify that, and we will have to see what case the Minister makes. I also look forward to hearing what the noble Lord, Lord Blencathra, who chairs the Delegated Powers Committee, says.
The Government have argued that they need to act with speed because of the urgency of the coronavirus pandemic. However, many measures here will persist indefinitely, as the noble Lord, Lord Hodgson, made clear. We are proposing three specific changes, recommended by the Delegated Powers Committee. As all noble Lords here will know, although it may be less well known should people outside be following these proceedings, the committee’s particular concern is with so-called Henry VIII powers, named for his supposed preference for legislating by proclamation rather than through Parliament. These powers enable Ministers to amend or repeal provisions in an Act of Parliament using secondary legislation, which is subject to very limited parliamentary scrutiny. These powers thus transfer power from Parliament to the Executive: the Government.
Thus, for example, the Delegated Powers Committee notes that Clause 23 confers extremely wide powers on the Secretary of State:
“The powers include the power to make provision amending, or modifying the effect of, any Act of Parliament ever passed—including the Bill itself.”
That is an astonishing statement. The committee describes this as something that
“might be called a ‘super-Henry VIII power’.”
We therefore propose in Amendment 71 the affirmative procedure, where regulations under Clause 23 amend primary legislation, as recommended by the committee.
Amendment 76 addresses Henry VIII powers in Clause 37. The Delegated Powers Committee does not accept the Government’s argument that they need to act with speed and recommends
“that the affirmative procedure should apply where regulations … amend primary legislation.”
It outlines ways in which speed can be delivered, for example through a “made affirmative” instrument, which could come into force pending approval by both Houses within a specified period of time. Our Amendment 76 delivers the affirmative procedure.
In relation to Amendment 145, the Delegated Powers Committee notes:
“Each of paragraphs 2, 4 and 6 of Schedule 14 confer Henry VIII powers.”
It emphasises that the “made affirmative” procedure could be used and points out that the Government acknowledge this in other instances elsewhere. It recommends
“that the affirmative procedure should apply.”
Our Amendment 145 delivers that.
I am sure that, as ever, the Government will pay close attention to what the Delegated Powers Committee said, especially since these powers cause such disquiet across the House. They are also an especial target of those three notable lawyers, the noble and learned Lords, Lord Hope and Lord Judge, and the noble Lord, Lord Pannick, whose names often seem to represent not the stages of grief but the stages through which Governments proceed when they defend, then amend, such powers. I am sure that the Government will pay close attention to the committee’s report; I trust, therefore, that they will find all three of the amendments I have outlined here acceptable.
Lord Blencathra (Con) [V]
My Lords, I will move that Clause 1 do not stand part of the Bill but I have no intention of seeking to delete the whole clause. I use this mechanism to draw attention to the Delegated Powers Committee’s recommendations on the excessive Henry VIII powers in the Bill. I am honoured to chair that committee.
Last Wednesday afternoon, we published our report. We drew the House’s attention to a number of concerns about the use of the delegated powers in the Bill. I am grateful to my noble friend Lord Hodgson, who referred to our report with great approbation in speaking to his amendments in the first group. I am also grateful to the noble Lords and noble Baronesses who high- lighted other parts of our report and some of our recommendations.
In our report, we draw attention to
“New Part A1 of the 1986 Act, inserted by clause 1 of the Bill”.
That clause alone contains 10 Henry VIII powers allowing the Bill to be amended when it becomes an Act. I will not list them today; the noble Baroness who just spoke mentioned three of them in particular. There are also further Henry VIII powers in Clauses 23 and 27 and Schedule 1. As we reported, the powers in proposed new Part A1
“are all designed to be permanent changes to insolvency law. The justifications offered by the Government involve: ensuring that the provision remains ‘fit for purpose’; the need to act quickly; the undesirability of taking up Parliament’s time unnecessarily.”
We say in our report:
“Ensuring that something remains ‘fit for purpose’ means little more than that the Government want to be able to change the provision by regulations if their policy changes. In our view”—
it has always been Parliament’s view—
“the presumption should be that where something needs changing which Parliament has enacted”
in an Act of Parliament,
“Parliament should enact the changes by primary legislation”
in another Act of Parliament
“rather than ministers make the changes by secondary legislation … As for legislating quickly, this is often best avoided”,
as we have seen time and again that urgent legislation usually needs amending sooner rather than later to plug gaps or correct mistakes.
The report continues:
“And where legislation is needed quickly, the coronavirus outbreak has shown that Parliament is capable of legislating quickly”
when necessary. It goes on:
“As for not taking up parliamentary time unnecessarily, this is a matter primarily for Parliament. Parliament’s task is to scrutinise the Government, including the scrutiny of major legislation that has been drafted in haste and which confers wide-ranging powers on the Government.”
I have heard the criticism today that our hybrid procedure is not the perfect way to do Committee or Report work, but no one has said that we do not have the time to do some scrutinising. I believe that in our hybrid procedures we still have ample time to do more scrutiny of Bills before Parliament.
My committee concluded that
“the Government have not demonstrated the need for the Henry VIII powers”
we identified, adding:
“We recommend that they be removed from the Bill.”
But we did not stop there. We also recognised the need for speed and flexibility and recommended that many of the regulations the Government may need to make should be done using the “made affirmative” procedure. We all know that all Governments under all Administrations prefer to bash things through on the negative procedure with no scrutiny; it is great if you can get away with it, and I did it myself when I was a Minister. The justification is always speed and that they cannot wait for an affirmative resolution. That is sometimes true, but the “made affirmative” procedure allows for exactly the same speed as the negative procedure but also allows parliamentary scrutiny afterwards.
We said in paragraph 22 of our report:
“However, another procedure exists under which an affirmative instrument may be made and come into force before it is approved by both Houses. This is known as the ‘made affirmative’ procedure. Under this procedure, the instrument is able to come into force as soon as it is made, but it will automatically cease to have effect if it is not approved by both Houses within a specified period of time. The period specified for approval is usually 28 days or 40 days, subject to extension for periods of dissolution, prorogation or adjournment for more than four days.”
We said in paragraph 23:
“Regulations under the ‘made affirmative’ procedure can be made and laid as expeditiously as regulations subject to the negative procedure.”
I suspect that many government departments are simply fixated on affirmative and negative and do not know that the “made affirmative” procedure exists. If they know it exists, they will still try to get away with the negative procedure.
None of these are a proper substitute for a real Act of Parliament to amend another Act of Parliament, but at least the “made affirmative” procedure is far better than changing any Act of Parliament without any parliamentary scrutiny at all. I therefore conclude by asking my noble friend to remove these excessive Henry VIII powers from the Bill.
Baroness Taylor of Bolton (Lab) [V]
My Lords, I share many of the concerns that the noble Lord, Lord Blencathra, has just outlined. I will say a few words as chair of the Constitution Committee. I thank the Minister for calling and arranging to listen to some of the concerns that I thought the committee might have before Second Reading. He will therefore not be surprised by the amendments tabled, particularly Amendments 66 and 70.
First of all, I think everyone on the committee, myself included, recognises that there is an urgent need to protect businesses during this current pandemic, as other speakers have said today. As a committee, we are of course always concerned about the fast-tracking of legislation, but these are exceptional circumstances and we understand why things have to be done in an emergency.
However—and this is a big “however”—the problem is that the Government are fast-tracking not just the emergency measures required but the permanent measures. This is where the main difficulties arise, which are extremely problematic for everyone in the Committee. It is the reason that we have tabled Amendments 66 and 70. I will say a few words about each.
Baroness Fookes (Con) [V]
My Lords, I am delighted to support the noble Baroness, Lady Taylor, in the two amendments she has tabled, to which I have added my name. I speak not only as a member of the Constitution Committee but as a former member and chairman of the Delegated Powers and Regulatory Reform Committee. I was delighted to hear my successor speak so robustly and correctly. Over the years, I have become increasingly concerned by the way the Government take on to themselves more and more delegated powers. It is important, even when we have a serious problem with coronavirus, that we make our case firmly.
The noble Baroness, Lady Taylor, discussed the two amendments in detail, so I will not go into them, other than to say that Clause 18, which we are trying to soften, is an immensely powerful one. It gives the Government unrivalled powers to take whatever powers they think they need in this emergency, without much restraint.
I regard Clause 18 as King Henry VIII at his most obese, and it is time he was slimmed down; the two amendments standing in our names try to do just that. I thought we had got there with Clause 23, which was the expiry one, but, when you look at it closely, you find that it is not a sunset clause at all because it is possible to renew the power to make these amendments. So I regard it as a pseudo-sunset clause, and it is high time that we all make sure that the Government do not get away, whenever they want, with whatever they want. We must bear in mind too, that it will not always be the present Government; some of the powers would remain for other Administrations, who might not be as enlightened as I am sure the present Government think they are.
Lord Wallace of Tankerness (LD) [V]
My Lords, I am very pleased to follow the noble Baronesses, Lady Fookes and Lady Taylor of Bolton, who are both my colleagues on the Constitution Committee. I have added my name to the amendments that have been spoken to in the previous two contributions, and that carry on the theme of both my noble friend Lady Northover and the noble Lord, Lord Blencathra, about the wide powers in the Bill. As indicated by the noble Baroness, Lady Taylor, the Constitution Committee accepts that there is a need for temporary emergency arrangements to protect business and the economy in the current pandemic crisis. But the committee also stresses, in its seventh report, published last Friday, that:
“During times of crisis and emergency it is all the more important to be vigilant about constitutional principles, such as the rule of law and parliamentary accountability. The need for an urgent response to COVID-19 does not justify Parliament neglecting its duty to consider the constitutional implications of the legislation presented to it.”
As speakers have already mentioned, there are very wide Henry VIII powers in the Bill, not least in Clause 18, which Amendments 66 and 70 seek to address. The Constitution Committee in a report in the 2017-19 Session specifically looked at the use of delegated powers, and said that Henry VIII powers are
“a departure from constitutional principle. Departure from constitutional principle should be contemplated only where a full and clear explanation and justification is provided”.
One looks in vain here for some full and clear explanation. Rather, we are told, in the delegated powers memorandum:
“There are no specific plans to use the power to make temporary changes at present, but it is likely that its use will be considered where representations have been made by industry or where discussions with key stakeholders have identified areas where urgent legislation could help save otherwise viable businesses or mitigate the impact of the pandemic otherwise.”
That is not exactly what one would call an intimation of specific intent.
Notwithstanding these misgivings, Amendments 66 and 70 are relatively modest, so I hope that they will commend themselves to the Government. The noble Baronesses, Lady Taylor and Lady Fookes, have already explained how they will work. In Amendment 66, we seek that a review should take place and report to Parliament. We have reviews of the current emergency regulations, and we find that they are more often shared with the Downing Street press briefing than with Parliament, but this modest amendment would require a report to Parliament. Amendment 70 would see a sunset clause in effect no later than 30 April 2022. The amendment probably to be spoken to later in this group by the noble Baroness, Lady Neville-Rolfe, would have an earlier sunset clause, and I must say I find that somewhat attractive. In the Government trying to take powers like this, they should adhere to constitutional principle. When such widespread powers are sought, they should be well and truly limited in their effect.
Baroness Neville-Rolfe
My Lords, I am glad to follow my noble friend Lord Blencathra, chairman of the Delegated Powers Committee, and other experts on delegated powers. I am sure that we will get a helpful response from my noble friend the Minister on these wider powers. As has been said, I will speak on Clause 39 stand part and the Northern Ireland equivalent, Clause 40.
I tabled these amendments with the help of our excellent Bill clerks, alongside my Amendments 68 and 74, which I may not now need to move as my questions are exploratory in nature; that may help us to make progress. I want to open up a discussion on time limits, particularly of the emergency measures. As I said at Second Reading, I support all these measures, but they change the balance of corporate law and can make life more difficult for the lenders and investors that businesses need for success.
I am very concerned about the powers of extension, which I do not believe will be properly scrutinised if used. Some are more contentious than others; the noble and learned Lord, Lord Hope, raised a good point about wrongful trading, and, as I said, even delays in annual general meetings and corporate filings are unwelcome. These provide vital transparency and the opportunity for probing questions to be asked of companies. If the Opposition’s proposal to extend the emergency measures to the end of September is accepted, I see no need for an extension to the various emergency powers, and certainly not of the easy kind proposed. So that I can consider my position on Report on the various amendments that we are discussing, I would like more details from the Minister on the use of the powers of extension; more of an analysis of the downsides of the emergency measures, as well as their obvious advantages; and details of the criteria that will be applied if and when an extension of power is used, how any costs will be assessed and when the arrangements will sunset completely.
Clauses 21 and 22 seem very elastic—a pseudo-sunset clause, as my noble friend Lady Fookes said—which is not what we are looking for on these emergency measures.
Baroness Anelay of St Johns (Con) [V]
My Lords, I would like to speak to Amendments 87 and 88 in this group, which are in the name of the noble Lord, Lord Stevenson of Balmacara. I notice from the speakers’ list that he is due to speak just before the Minister responds to this debate.
I am very pleased to follow others who have talked at length about Henry VIII powers and their dangers and to hear from my noble friend Lord Blencathra, who chairs the Delegated Powers Select Committee. The noble Lord, Lord Stevenson, seeks to amend the Bill to reflect some of the criticisms in the delegated powers report, particularly regarding the Henry VIII powers, which would give the Secretary of State the power to change the circumstances in which a company can be eligible for a moratorium—by presenting an affirmative instrument to the House—and, in that way, avoid having to go back to primary legislation.
Amendment 87 removes the whole power; Amendment 88 circumscribes its use. I believe it is a very brave Government who ignore entirely the recommendations of this House’s Delegated Powers Committee. When the Minister responds, he may suggest one or two courses of action. Perhaps he will offer the House a more plausible justification for a definition of the need for speed that is mentioned—the need for speed for the wide powers that are currently drafted in paragraph 20 of new Schedule ZA1—and press ahead with the current drafting of the Bill. I believe that he may find that too difficult a mountain to climb.
On the other hand, he might say that, while the Government hold to their belief that it is in the interest of businesses that the Government should have the power to make swift changes to these provisions on the extendable 20-day moratorium, he and his department are considering how best to adopt Amendment 88, tabled by the noble Lord, Lord Stevenson of Balmacara, which follows a recommendation of the Delegated Powers Committee that, if the House were prepared to consider the “need for speed” a sufficient justification, the exercise of that power should be subject to a precondition under which the Secretary of State is required to be satisfied that significant damage would be caused to business were the power not exercised.
Lord Thomas of Cwmgiedd (CB) [V]
My Lords, I will speak briefly on the rulemaking powers. I first draw attention to my interests in the register, in particular that I am chairman of the Financial Markets Law Committee, which is interested in clarifying and making certain the law.
It seems that there is a clear dilemma. The Bill is needed very urgently. It is sensible to make the changes to insolvency law that have been consulted on for some time and to provide for a new form of reconstruction, but these are needed now and they cannot sensibly be left to a later time. However, the Bill is of such complexity and, in some areas, of such novelty that more time is needed to sort out the many technical points that continue to arise, despite all that is being done by the Minister, his department and the insolvency services.
Points are being identified all the time. I will give just one example that possibly illustrates the interrelationship between new points and the scope of the delegated powers. It is unclear whether financial service creditors with super-priority have a claim on assets charged to secure debts without super-priority. The Minister might say that these can be dealt with under new Section 174A(3) to the Insolvency Act on page 108 of the Bill, but it is not clear that that power is wide enough. I take that illustration because it shows two points: first, that areas of uncertainty remain, and, secondly, that it is not clear that the delegated powers are drafted in wide enough terms.
Normally, I would absolutely deprecate extensive Henry VIII powers, but I really feel that these are needed in the circumstances of the Bill. It is absolutely essential that uncertain points can be clarified, I hope while the Bill goes through its remaining stages over the next week, but if not by swift rulemaking changes or regulatory changes to it. Points will go on being spotted—some have already been spotted and not rectified—but certainty is essential if we are to weather the problems that will undoubtedly arise over the coming months. We obviously need safeguards. I do not wish to add to the length of what I wish to say by going through the various solutions put forward by the Delegated Powers Committee and the Constitution Committee, so ably explained by my noble friends Lady Taylor and Lord Blencathra.
However, I will emphasise that we cannot escape the need for delegated powers, we cannot escape the need for speed and we should make sure, because it is the reality, that we can iron out points of uncertainty as quickly as possible.
We might say that the courts can do this. I have no doubt that they can, but there are two things that one should say. First, there are issues of policy here which ought to be decided either in this House or by the Executive, and, secondly, there are bound to be mistakes which it is not possible for the courts to rectify.
The courts will of course have extra work, as people have acknowledged, and they may require additional resources. Amendment 62 suggests that there be a report on how the courts are managing and whether training is under way. My understanding is that a significant amount of training has taken place, but the adequacy and the scope of it is under the Constitutional Reform Act a matter for the judiciary and not for the Executive or for this House.
Lord Howarth of Newport (Lab) [V]
My Lords, as a fellow member of the Constitution Committee, I am delighted to follow my noble friend Lady Taylor of Bolton, the noble Baroness, Lady Fookes, and the noble and learned Lord, Lord Wallace of Tankerness. I also endorse warmly the powerful points made by the noble Lord, Lord Blencathra, and the noble Baroness, Lady Northover.
Amendment 66 would enable Parliament to “keep … under review”—a phrase we hear endlessly—the manner in which the Secretary of State keeps under review the use of the very broad Henry VIII powers to change the law on corporate insolvency by regulations which Clause 18 empowers him to make. As many noble Lords have said, if we are to have Henry VIII powers, which are in principle constitutionally offensive, a special and convincing case must always be made for their creation by the Government. If they are to be legislated for, they should be as narrow as possible to meet their specific purpose and they should not last a minute longer than—as far as this legislation is concerned —the emergency requires.
As has been noted, the powers in Clause 18 expire on 30 April 2021, but regulations already made under that power can be extended. Moreover, the Henry VIII power itself can be extended by regulations under Clause 22 for another year, and again and again thereafter. That being so, these clauses give the Government a blank cheque. So Amendment 70, which sets a final expiry date, is the very least that is required.
I am very attracted to the robust and no-nonsense approach of the noble Baroness, Lady Neville-Rolfe: simply abolish the clause. Clause 39, to which she spoke, is a wicked piece of legislation in constitutional terms. It creates a power for the Secretary of State to change the duration of temporary provisions and to keep on doing so, ad infinitum. It is the most self-indulgent of Henry VIII powers. It is constitutionally offensive, and it really should not stand part of the Bill.
I accept, as do members of the Constitution Committee and, I think, all other noble Lords, that there is an emergency which needs urgent legislative action and that, as long as the emergency persists, we will need provisions in place to protect as far as we can businesses that are vulnerable to the coronavirus crisis and of course the jobs of those employed by them or dependent on them indirectly. However, as has been noted also by the noble and learned Lord, Lord Wallace of Tankerness, in an emergency—and this applies especially in a prolonged emergency—the more important it becomes for Parliament also to be vigilant and to protect the principles of the constitution.
The Bill, which the Government are fast-tracking, is huge. It has 47 clauses, 14 schedules and 234 pages. Like Henry VIII clauses, fast-tracked legislation should be rare. It should be specifically and convincingly justified and its scope should not extend beyond the minimum necessary to achieve its purposes, although the scale of this legislation makes even more questionable the appropriateness of the fast-track process.
The Government are tracking the Bill so fast that the House of Commons barely saw it. Its Second Reading and remaining stages all took place on the same day; the remaining stages were transacted in half an hour. The Bill was gone in a blink and the House of Commons did not perform its proper responsibility, I regret to say, of scrutinising it. If the House of Lords steps in where the House of Commons fears or has failed to tread, and if we seek to advise and to do so by way of passing amendments, Ministers and even Back-Bench Members of Parliament are wont to express some resentment. But we have a responsibility to scrutinise and improve important legislation. What else is Parliament for? Noble Lords have made a large number of important observations and criticisms of flaws in the Bill today, particularly in the very long debate on the first group. What we need to do, I suggest, is to separate policy for the emergency from policy for the long term.
This brings me to my second objection, beyond the inappropriate fast-tracking of some of this legislation. As many noble Lords have noted, the Government should not smuggle in permanent changes to policy and law via fast-track emergency legislation. There are three sets of permanent changes, as I understand it, in the Bill. There is a procedure for a new moratorium on enforcement action against companies in financial distress, even though this procedure may be detrimental to creditors and investors, and therefore be potentially as damaging as allowing the debtor companies to go to the wall. The Bill also provides for permanent new arrangements for restructuring companies that are in financial distress, and for restrictions on contractual supplier termination clauses.
In winding up on the first debate the noble Lord, Lord Callanan, argued that the Government had previously consulted on the permanent measures. Indeed they did, but that is no excuse for seeking to bypass full parliamentary scrutiny of important changes to the law on insolvency. We are not making a fuss about the dignity of Parliament. We are complaining about the Government outflanking a process which actually enables them to get difficult changes right and give democratic legitimacy to changes in the law. In another context, the Minister was very keen to restore full law-making rights to this Parliament. I wonder how he justifies what I would regard as this two-fold abuse of Parliament: fast-tracking such a vast law and using emergency legislation to enact permanent changes.
If the Covid-19 effects should, unfortunately, persist in a very damaging form, Parliament should return in new primary legislation to the question of what emergency powers the Government should continue to be able to exercise. I was attracted by the proposal made earlier by my noble friend Lord Liddle: that there should be post-legislative scrutiny of the Bill. The noble and learned Lord, Lord Thomas, put it to us that delegated powers are essential in the emergency. Yes, they may be, but there should be proper sunset clauses attached to all the powers that the Bill creates, and especially the ones that are intended to be permanent, which should never have been in a Bill creating powers for an emergency. At the least, as the DPRRC has recommended, these powers should be amended to limit their use to a period only so long as the Secretary of State judges that the effects of Covid-19 require them.
Lord Mann (Non-Afl) [V]
My Lords, it seems that there are different rationales for why amendments can be put forward and supported. It is often because of the poor drafting of legislation; sometimes, of course, it is for political point scoring or, often, where there is a clear difference of opinion. Sometimes they are intended to save the Government from themselves and, having heard the arguments of the noble Lord, Lord Blencathra, and others, it appears that these amendments sit within the latter category if they are to have any validity. I note that the Law Society is rather supportive of some amendments, in contrast to the noble and learned Lord, Lord Thomas, although I found his arguments logical and persuasive.
Lord Fox
My Lords, the amendments in this group, along with those coming up in group six, are designed to pull back a Government seeking to overreach themselves and take on powers that should remain vested in Parliament. The Committee has heard strong arguments from the noble Lord, Lord Blencathra, and many members of the Constitution Committee, to back up this point. Amendment 66 hardens the requirement for the Secretary of State to keep the regulations under review by setting a timetable for those reviews and reporting them back to Parliament. This does not meet the idea of post-legislative scrutiny suggested by the noble Lord, Lord Liddle, but it does at least give Parliament the ability to review what is happening. Amendment 70 prevents the Clause 18 power being renewed on more than one occasion. In other words, it sets a hard stop of 30 April 2022.
Amendments 71, 76 and 140, tabled by my noble friend Lady Northover, to which I have added my name, seek to address the Henry VIII issues that were thrown up in such stark relief by the Delegated Powers and Regulatory Reform Committee. I do not need to add to the wisdom given by other noble Lords. It is absolutely clear that these could be transferred to an affirmative process. Were they to be so, this would not remove the Government’s ability to make the changes they think necessary to deliver the flexibility we may need in the crisis as it develops. The Government do not need to be frightened of this amendment. They can take it on board. It would calm down a lot of Peers.
Lord Stevenson of Balmacara [V]
My Lords, I am grateful to all noble Lords who have spoken in this interesting and wide-ranging debate. In contrast to that on the first group, it was quite well focused. There are only a couple of things that escaped the broader consideration of the two advisory committees we have been hearing from: the DPRRC and the Constitution Committee. Amendment 62, in my name, is oddly grouped in this debate but was meant to be helpful. I hoped that the Minister could reassure the Committee that all that needed to be done was being done to make sure the courts played their part appropriately—it is nothing to do with Parliament and, as the noble and learned Lord, Lord Thomas, said, nothing to do with the Government either.
Nevertheless, the funding needs to be there and the resources need to be available to ensure that the work is done properly to support the legislative attempts that have been made within the Bill. If it is of any interest, we tried in our amendment to add not just the judiciary but the staff of the courts, because they too have a part to play, but we found that that was out of scope, so the amendment focuses purely on the judiciary. But it should be understood to be about the court system as a whole helping and supporting the legislation moving through.
The noble Baroness, Lady Anelay of St Johns—who should know a thing or two—said very clearly that only a brave Government would ignore the DPRRC or Constitution Committee reports, and I am sure that it is not in the mind of the Minister to take them on at this stage. Our amendments are largely an attempt—and I acknowledge considerable assistance from the Public Bill Office—to put the aspirations of the DPRRC into a form that could be considered as amendments. They are not meant to be a statement of where we want to get to. They are probing amendments to provoke a response from the Government. I also think that the recommendations of the Constitution Committee, as outlined by my noble friend Lady Taylor and her supporters in Amendments 66 and 70, are exemplary because they quickly get to the heart of what we are about. They contrast slightly with the approach taken by the noble Lord, Lord Blencathra, whose excellent speech belied the fact that his way was simply to delete the clause. That would not achieve very much except make this Committee very happy but it would obviously remove the impulse which has led to where we are.
We are obviously in a situation where we need clear agreement between the various interests displayed in this debate. It really is up to the Government to assure the Committee that, in the words of the noble Baroness, Lady Neville-Rolfe—and I agree with the line she is taking—the analysis has been done properly. We need to better understand the interaction between the lengths and temporary measures—how long the temporary parts of the Bill will last and under what arrangements they can be sunset. If they are not to be sunset, what assurances and safeguards are available to this House and to Parliament as a whole? We need a full and mature consideration, but all that has to be done in a matter of days because the date for the final submission of amendments for Report is looming fast. Indeed, it will have to be the end of this week so that we can debate them in the middle of next week.
We are in a quandary. The Government need to give us an assurance about that, but I make it clear that we are happy to discuss with the Government any way in which we can help, and I am sure that others who have contributed would also do that. We are clearly at a bit of an impasse if we do not find a way out of this, but there seem to be solutions on the ground. The amendments tabled by my noble friend Lady Taylor are attractive and the idea, as the noble Lord, Lord Blencathra, put it, of taking up sensible safeguards such as making the “made affirmative” procedure the default position on this is probably the right way to go. We will need assurances that the Government will not attempt to ride straight through the long and distinguished history of Parliament trying to make sure that abuses are not perpetrated within legislation which it then cannot involve itself with. I look forward to hearing from the Minister on this and hope that he is able to reassure us.
Lord Callanan
I thank all noble Lords for their contributions on this group. I will make a few general comments before I look at the detail of the amendments tabled.
I shall comment first on what I thought was the most important contribution to the proceedings, which of course was the noble Lord, Lord Mann, making a football analogy, which is more important than this legislation. I joke, of course, because it is not, but many of us are looking forward to the recommencement of the Premier League season tomorrow. I suspect that we support different clubs, but nevertheless I am sure that we will both welcome the resumption of football. The serious point is that many of these provisions will apply to football clubs. We hope, as is the purpose of this legislation, that it will enable any of them which are struggling to be saved. The Government have already announced a substantial package of aid and support for many businesses, including football clubs; I think that the Premier League has announced a package of £125 million that is to go to other clubs. We welcome that, and of course many clubs have taken advantage of our other business support measures.
The noble Lord, Lord Howarth, asked why there are so many delegated powers and Henry VIII provisions in the Bill. It is important to address this issue directly. We introduced new procedures to help companies in financial difficulties, in particular the moratorium which we debated earlier, and the new restructuring arrangements, and there are considerable powers to enable these provisions to be reviewed and adjusted if necessary. This point was recognised by the noble and learned Lord, Lord Thomas, and I am grateful for his support. Insolvency legislation is indeed very complex. The Bill has been drafted at pace to respond to the Covid-19 emergency and it contains powers to enable its provisions to be adapted to different types of corporate body or bodies which are subject to special insolvency procedures. It will also ensure that the detail of such procedures can be amended swiftly in the light of these reforms.
My noble friend Lord Blencathra opposed the Question that Clause 1 should stand part, in order to facilitate a wider debate on the Bill’s delegated powers. I know that he wishes to understand the Government’s position across the amendments related to delegated powers and I hope to be able to respond to his points throughout my response. I note that many of these amendments have been drawn from the report on the Bill by his committee. The Government are carefully considering that report, which we received following Second Reading. I have considered the report and I have listened carefully to the views of noble Lords throughout the debate.
My noble friend Lady Neville-Rolfe opposed the Question that Clause 39 should stand part of the Bill. I will explain. The clause enables the Secretary of State to make regulations either to extend or to curtail the periods during which the temporary provisions in the Bill operate. This is important to ensure that the temporary provisions are not in place for longer than necessary, but also that they do not expire at a time when they are still needed to protect the economy from the impact of the coronavirus emergency. Clause 40 makes similar provisions for Northern Ireland. Clause 41 ensures that where regulations are needed urgently as a result of the insolvency measures being introduced by this Bill, they can be made using the negative procedure for a six-month period after commencement. I therefore commend that these clauses stand part of the Bill.
I turn now to the amendments which seek to remove the powers to make secondary legislation conferred on the Secretary of State in relation to the moratorium. These powers enable the Secretary of State to amend, for example, definitions, defined lists and the circumstances in which the monitor can bring the moratorium to an end. In our view, these powers are required because in the future, it is possible that the Government may wish to address any unforeseen issues efficiently to ensure that the conditions for entry into a moratorium remain fit for purpose and to keep definitions up to date as new activities and entities come within the relevant regulated regimes.
Amendment 52, tabled by the noble Lord, Lord Stevenson, seeks to remove the power conferred on the Secretary of State to amend the list of exclusions set out in Schedule 4ZZA. The Government must retain this power in order to be able to react quickly to evolving situations in business and the financial world and to maintain legal certainty. Without the ability to do this, there is a risk that the Government would not be able to keep pace as new firms or types of contract emerge.
Amendment 62 would require the Government to review the impact of certain measures in the Bill on the High Court and to publish a plan to ensure that judges are appropriately trained in their implementation. I hope that it will reassure noble Lords if I confirm that we have engaged extensively with the judiciary in the course of developing these measures with the aim of ensuring that the impact on the courts is minimised. As always, the Government are extremely grateful to members of the judiciary for sharing their insights into these matters.
The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
I have received a request to speak after the Minister.
Baroness Northover
My Lords, I thank the Minister for that reply. He is saying two things: one, that he will be listening to the Delegated Powers Committee and the Constitution Committee; and two, that he has rebutted the various amendments. So it would be very helpful if he would consider those reports and the various amendments in this group and come forward with his own proposals well before the deadline for amendments for Report, so that noble Lords can see the extent to which he has, as he has promised, taken into consideration what those two very significant reports say.
Lord Callanan
We will, of course, issue a formal response to the DPRRC report, hopefully by Friday—but, since Report is next Tuesday, we will need to act more swiftly than that in terms of considering amendments. However, as I have said, I have listened carefully to the points that have been made.
Lord Leigh of Hurley [V]
My Lords, I thank the Minister for his remarks and all noble and noble and learned Lords from all sides of the House for a really interesting debate, agreeing on much. I think my noble friend did address the concerns raised. However, I do not feel that he addressed the concerns raised in respect of Amendment 7 at all, so I would be very grateful if, before Friday, he can communicate with me his remarks in respect of this important point. On the assumption that he will be able to do that, I beg leave to withdraw my amendment.
The Deputy Chairman of Committees
My Lords, the House is again in Committee on the Corporate Insolvency and Governance Bill. We now come to the group of amendments beginning with Amendment 20. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate. Anyone wishing to press this or any other amendment in this group to a Division should make that clear in the debate.
Amendment 20
Baroness Drake
Baroness Drake (Lab) [V]
My Lords, I refer to my entry in the register of interests. I shall speak also to Amendments 39, 63 and 64.
I fully support the Government’s desire to assist companies in bouncing back from Covid-19, but it is neither necessary nor desirable that such a policy should seriously weaken the position of defined benefit pension schemes and the Pension Protection Fund in the event of an insolvency or restructuring. The Bill does this in several ways: by granting super-priority status to unsecured banking and finance debt, ranking it above pension scheme debt if a company is not rescued, which introduces material detriment to the level of recoveries the PPF, acting as creditor for a scheme, can achieve through insolvency proceedings; by finance debts getting preferential treatment over pension scheme liabilities by continuing to be payable during a moratorium; and by the new moratorium and restructuring plan processes not triggering a PPF assessment period or a pension scheme’s Section 75 debt, weakening the position of the scheme and the Pension Protection Fund, which would not have a seat at the table for key creditor and restructuring plan discussions and would be denied a meaningful voice on employer liability to the scheme.
The Minister wrote yesterday and indicated that the Government will bring forward amendments on a number of matters, for which I thank him. We have yet to see the text of those amendments, but I will seek to reference the Minister’s letter in what I say.
Amendment 20 removes amounts payable in respect of pre-moratorium debts and other liabilities
“arising under a contract or … instrument involving financial services”
from the exemption from the payment holiday during a moratorium and the super-priority provisions in the event of an insolvency process. Amendment 39 does the same in Northern Ireland.
There is nothing in the Minister’s letter that indicates the Government’s intention to give further attention to their decision to give such a wide range of finance debts elevated status and preferential treatment over pension scheme liabilities. We have today heard his statement on accelerated finance debt, but I will continue to press my amendment.
It is difficult to comprehend the Government’s reasoning for liabilities under financial services contracts, extremely widely drafted in the Bill. It would include unsecured lending such as shareholder loans and intercompany loans, including from a director or parent company, as well as arm’s-length regulated activities and bank debts, all getting preferential treatment over pension scheme liabilities. Others have asked similar questions in respect of SMEs and workers.
As drafted, it would allow finance parties to accelerate all debt so that the entirety of the lending would be payable under these provisions and benefit from super-priority on insolvency. There is a real risk of gaming. The noble Lord, Lord Hodgson of Astley Abbotts, and the noble Baroness, Lady Bowles of Berkhamsted, articulated such examples so brilliantly in the first group debated. From what I heard during that debate, I welcome the Minister’s statement that accelerated debt will not now have super-priority status, which addresses in part—but certainly not in whole—the purpose of my amendment.
During a moratorium, these financial debts would continue to be payable, pension scheme deficit contributions would not and the trustees could not call on any contingent assets that would otherwise be triggered by non-payment of deficit contributions. Priority for finance debts would remain. The Law Society has said:
“the Bill would create an incentive for lenders without effective security to allow the rescue of a company through a moratorium to fail, so as to force it into administration or liquidation and achieve super-priority.”
I say this without sight of the Government’s amendments, but there may remain a perverse incentive that undermines any preference the trustee or PPF may have to rescue the company.
Worryingly, liabilities imposed by the Pensions Regulator on the company for breach of moral hazard rules, such as contribution notices and financial support directives, also rank behind these financial debts. This is not addressed in the Minister’s letter. Will the government amendments address this concern?
Amendment 63, through an amendment to the Pensions Act 2004, provides that both the start of a moratorium and an application for a meeting of creditors to consider a restructuring plan would trigger a PPF assessment period and a scheme’s Section 75 debt. Amendment 64 applies similar provisions to Northern Ireland. This would enable the PPF to act as the creditor of the scheme, which would have an improved standing and vote. These are key protections that currently exist.
In his letter yesterday, the Minister advised that the Government will bring forward amendments that will: during a moratorium, give the PPF rights to information and the right to challenge the actions of the directors and/or the monitor; on a restructuring plan, provide that both the PPF and the Pensions Regulator will be entitled to receive copies of all the information sent out to creditors; and, on both procedures, grant the ability to provide creditor rights to the PPF, subject to appropriate constraints.
I welcome that the Government have recognised that the pension trustees, the PPF and regulator need the rights and authority to engage effectively during the moratorium and restructuring plan discussions, but it is unclear how meaningful those engagement powers will be without seeing the actual amendments and to what extent they will be broadly comparable with or weaker than the current safeguards available.
It will also be important to understand how any government amendments address the serious risk that the new restructuring process could give rise to the systemic dumping of DB pension schemes by companies that are financially underperforming. The restructuring plan procedure can compromise creditors’ claims and standing. It allows for a cross-class cram down and there is much speculation that this could be used to cram down the pension scheme. I ask the Minister how the government amendment would address that concern.
The relevant legislation, which gives the PPF creditor rights, is chiefly the Pensions Act 2004, which puts in place a careful framework that supports action to rescue distressed companies, while protecting the interests of pension scheme members. It does this by triggering a PPF assessment period at the start of the insolvency proceedings that aim to rescue an employer. The PPF steps into the shoes of the trustees by acting as creditor for the debt owed to the scheme. This legislation has proven effective and has delivered better outcomes.
As drafted, the Bill directly undermines that carefully structured framework. It will be important to understand how and to what extent the Government’s amendment rows back from that consequence. The 2004 Act provisions were a product of the failure of successive Governments to protect pension scheme members under UK insolvency laws. It would be regrettable if, through this Bill, history repeated itself.
The Minister’s letter sent yesterday and his statement on accelerated finance today are a significant step forward, but they do not eradicate all the key risks that many noble Lords are so deeply concerned about. I ask the Minister if, before Report, he will reflect further on the concerns that I, and no doubt others, will express today. I beg to move.
Baroness Warwick of Undercliffe (Lab) [V]
My Lords, until recently, I was a member of the board of the Pension Protection Fund. I will speak to Amendments 20 and 63. Like my noble friend Lady Drake, I have yet to digest the contents of the Minister’s letter from yesterday evening and we have yet to see the actual amendments, but I want to set out my concerns, so that they can be tested against the concessions he has made.
I fully support the policy intention behind the Bill: to help otherwise financially viable companies avoid the prospect of failure, as a result of the unprecedented disruption that Covid-19 has caused. However, alongside its temporary measures, the Bill includes permanent measures—the moratorium, the restructuring plan and changes to creditor status—that will be far-reaching. On the current drafting, there will be consequences that have the effect of reducing the protection and rights of underfunded pension schemes and the Pension Protection Fund when companies are in financial distress—protections that have been carefully built up and developed over 16 to 17 years.
Amendment 20 removes financial debts being exempt from the moratorium payment holiday and the granting of super-priority to those debts in the event of a company entering into an insolvency process. Amendment 63 provides for the triggering of PPF creditor rights and a scheme Section 75 deficit at the start of a moratorium and of restructuring plan discussions.
We cannot overestimate just how serious this is. For many years, the covenant position of defined benefit pension schemes has been based on unsecured pension debt ranking side by side with debts owed to other unsecured lenders. This has underpinned all valuation, funding and covenant discussions. The super-priority status granted to finance debts in an insolvency following a moratorium removes that base. It weakens valuations and funding arrangements and is detrimental to members of pension schemes and to the role of the PPF acting as creditor. It also affects the scheme trustees. The liabilities of the scheme—the pension promise—are usually significant and payable over a significant number of years. Unlike other unsecured creditors, trustees are not in a position to manage the exposure to the scheme’s debt by ceasing to deal with their employer. Therefore the Bill dramatically enhances the interests of the finance lenders and weakens the interests of the pensioners and future pensioners in an insolvency situation.
Lord Balfe [V]
I will be brief. One good thing is that there is no time limit today so people have tended to speak on a bit, shall we say?
First, I endorse everything that was said by the noble Baronesses, Lady Drake and Lady Warwick. I hope that there might be an opportunity for a meeting before the final publication. My only point in addition to that is that we seem to imagine that the PPF is safe for ever. I have always—or at least over the past year or so—said that, one day, this lifeboat is going to sink unless someone puts some effort into making it float and keeping it alive. I suppose that BEIS and the DWP are separate departments but we run the danger of ignoring pension schemes to a point where the levy will become unsustainable and the whole edifice will come crashing down on us. I ask the Minister to look carefully at this.
In closing, I repeat the point that I have made ad nauseam: pensions are deferred earnings of the workers in the company, often stretching back over many years, and they deserve priority. That remains my fundamental position.
Baroness Altmann [V]
My Lords, I will speak to Amendment 27, which is in my name. I support whole- heartedly Amendments 20, 39, 63 and 64, as well as Amendment 118, to which I added my name.
I echo the wise words of the noble Baronesses, Lady Drake and Lady Warwick, and my noble friend Lord Balfe. It is of deep concern that the Bill did not originally encompass provisions to protect the deferred pay of workers in an insolvency or restructuring situation. Indeed, as it stands, the Bill drives a coach and horses through the protections that, as the noble Baroness, Lady Drake, so rightly outlined, were carefully crafted and put in place in 2004 to ensure that workers’ pensions were protected, having been through several years during which it was discovered that many members of defined benefit pension schemes had lost much, or even all, of the pension that they had been relying on for their retirement.
The Bill is a significant change to the usual priority order for unsecured creditors in an insolvency or a restructuring situation. It is an existential threat to defined benefit pension schemes in the UK to give super-priority status to unsecured financial debt over that of other unsecured creditors—including the associated pension scheme and the rights of the Pension Protection Fund, which protects all other defined benefit pension schemes in the UK. I urge my noble friend—I thank him for at least recognising that this is an issue and saying that the Government will table amendments—to listen carefully to the concerns expressed in the debate on this group of amendments and ensure that consultation is put in place, as other noble Lords have requested, so that we can try to get this right.
The pension promises are so important for workers but, as it stands, this legislation would appear to legitimise the actions in connection with pensions that have been considered egregious over the years. The Pensions Regulator’s reports on the pension schemes of BHS or Carillion, for example, make it clear that the pension funds were at risk of being gamed by other financial creditors passing the parcel or elevating themselves ahead of the interests of the pension schemes.
Amendment 27, for example, would ensure that if an insolvency was in the offing and the monitor applied to the court to remove protection from assets that were previously secured, such consent could not be given without the approval of the Pension Protection Fund. That is really important. With the provisions proposed in, for example, Amendments 63 and 64, the PPF would already have been involved because a PPF assessment would have been triggered. After a PPF assessment period is triggered, the PPF can come in and protect its own position and that of the pension fund; that is, the creditor rights.
At the moment we have a system whereby trustees carefully work out integrated risk management proposals to ensure that the contributions to the pension scheme demanded of employers are reasonable and proportionate in terms of helping the company to survive and thrive, but also protecting the scheme should the company not do so. In that regard, many schemes have been pledged assets belonging to the company so that, if insolvency occurs, they will be available to boost the pension scheme. Under the current proposals in the Bill, without Amendment 27 the assets pledged to the scheme would potentially disappear and the banks would potentially secure themselves a win-win situation while jeopardising the interests not only of the pension scheme attached to the company in question but of all other defined benefit schemes protected by the Pension Protection Fund and the millions of members in those schemes. I hope that my noble friend will listen carefully and take seriously the concerns expressed across the Committee that banks should not be given preferential status.
I would also like to pick up on what my noble friend the Minister said in the debate on the first group of amendments: that the intention behind the moratorium is not to make creditor positions worse. However, in the context of a defined benefit pension scheme, should the Bill’s measures not be amended in line with the types of amendments proposed here, there will be a fundamental change if an insolvency winding-up or administration takes place within 12 weeks of the moratorium, and the moratorium and pre-moratorium debts take priority over creditors such as those with Section 75 unsecured pension debt.
I welcome my noble friend the Minister’s comment that the Government plan to bring forward their own proposals to address some of the concerns covered by my Amendments 94 and 95, and I thank the Law Society very much for its help and support in addressing these inconsistencies or insufficiencies in the Bill. I hope that my noble friend will bring forward amendments to ensure that pension schemes are protected, that contribution notices and financial support directions are not overridden, and that the pensions of scheme members across the country—pensions on which they rely for their retirement security—are not significantly jeopardised by this well-intentioned and important Bill.
Lord Fox
My Lords, I rise with some trepidation following four experts on pensions. I shall speak to Amendment 118, which bears my name alongside those of the noble Baroness, Lady Altmann, and my noble friend Lady Bowles. Before that, I want to pick up on the point just made by the noble Baroness, Lady Altmann, on asset pledges in her Amendment 27.
That is important for two reasons. First, if the asset pledge falls in the case of an insolvency, pensioners will of course miss out, but, secondly, it is a challenging time for pension trustees even if they are operating within solvent companies today. Asset pledges have been used so that companies do not have to funnel direct cash flow into their pension funds, leaving that cash flow available for them to invest in the expansion of the business. If the Bill stays as it is and I was a pension fund trustee, I would go back to the company funding the pension and say, “That asset pledge is no longer worth the paper upon which it is written. I need more cash”. It is not in the interests of that business and, frankly, nor of this country for that cash to be siphoned off and taken out of investment for growth. That is an important point and the noble Baroness was wise to have raised it.
As the Minister knows, if a business goes bust with an underfunded DB scheme, the pension debt ranks alongside other unsecured creditors such as banks. This Bill dramatically changes that.
We all received an email late yesterday that seems to indicate movement on the Government’s part, and about that we should be very pleased, but it is difficult to tell how far and to what level that movement is going without the relevant amendments. Today, a second rabbit was pulled from the Minister’s hat and we were told that there will movement around banks and financial institutions. It is difficult to see what is going up and what is going down in terms of the movement, so we shall have to wait to see what the amendments say. The Minister could probably say today whether the Government intend to restore the level of access that the PPF and therefore pensioners had as creditors, at the very least to what it was before the Bill was drafted, or whether we are going to be somewhere between that and where we are now.
The email that we received yesterday uses fairly passive words. We are told that under a moratorium the PPF will be given rights to “information”; we are told that, under restructuring, it will receive “copies of”—it sounds like they are added to the “cc” list of the email going round—subject to appropriate constraints. I concede that, under a moratorium, the PPF is given the right to challenge the actions. I have the right to challenge actions, but will it have any powers to make that challenge stick? There is an awful lot of haze in this. It is clear that there has been some movement in the Government’s position. The sooner the Minister can table the relevant amendments, and the sooner he can clarify whether pensioners will be as well off as they are now or better off or worse, the better.
Baroness Neville-Rolfe [V]
My Lords, I have not yet seen the email or of course the amendments, so I have nothing to add at this stage but look forward to studying them.
Lord Thomas of Cwmgiedd [V]
I put my name down to speak on these amendments because of the very wide terms in which they were drafted. From the perspective of legal certainty and the importance of the London financial markets, it seemed that the Government’s overall policy of excluding financial service contracts was completely the right one, and the suggestion of these amendments was to remove part or all of that protection. However, from what has been said in this debate, it is clear—at least, I hope it is clear—that what gives rise to the concern really relates to the position of pension funds. It seems to me that this is a much narrower subject and it turns on the question of the priorities that will need to be clearly spelt out in the event of an insolvency.
Earlier, I raised the rather difficult issues that relate to priorities. This debate seems to underline the importance of that. I hope the Minister will have the opportunity to clarify precisely the way in which the priorities as between financial service contracts and a pension fund are to be resolved in the event of an insolvency.
Baroness Bowles of Berkhamsted [V]
My Lords, it is a pleasure to follow many speakers with great experience in the pensions world. As the Minister said in speaking to the first group of amendments, the objective of moratoriums in this legislation is that they will succeed and that companies with a hope of surviving will do so. But that will not always be the case. Insolvencies or other arrangements may follow. The moratorium structure rewards those who continue to supply, with an enhanced priority in a subsequent insolvency. It rewards financial institutions in a particular way that is identified as giving priority to creditors, including those who would have just ranked alongside pensions as unsecured creditors but are promoted above them.
As has already been mentioned, the Minister said in responding to the first group of amendments that some change will be made to exclude accelerated debt from super-protection. That does not sound like even as much as was covered in the group 1 amendment of the noble Lord, Lord Hodgson, which I signed, but it is a start. Nevertheless, I am still concerned that it elevates all financial debt above pensions, as explained by the noble Baroness, Lady Drake. If I heard the Minister correctly, he implied that without being given priority, in return for none of the things that bind other companies, banks would not play ball—I paraphrase what was actually said. The reason why the banks will play ball is to get benefits. That still means that they will make greater demands and ask for bigger fees. They will still accelerate payments even if they do not get priority, but that will still suck funds out, because banks do not have a payment holiday.
I am attracted somewhat to what the noble Lord, Lord Balfe, said on whether the PPF will survive. I note that having to stand behind pensions actually comes from European legislation. I believe the UK was taken to court on this subject. Do the Government still stand behind legislation protecting pension benefits, or is that a piece of EU legislation headed for the dustbin of broken promises?
Like other noble Lords, I think that the Government need to think further about the legislation’s effects on pensioners, the Pension Protection Fund, the Pensions Regulator, pension trustees, companies contributing to the PPF, which will face elevated contributions, and those self-same companies facing deficit repayment schedules that will need to be greater to compensate for the actions in this legislation, as well as the fact that many schemes are much further in deficit because of the current crisis situation that we are in.
Also, what does this blackmail change—I call it “blackmail” because that is what it sounded like when the Minister explained it—to the insolvency waterfall say about the stability of legal agreements and contracts in the UK, if securities that have been pledged to pension funds can be sold from under them through a retrospective law change made without any warning or notice? That is what this priority change is. “Moratorium” might have been trailed, but “moratorium” means delay, not a change of priorities and the inclusion of financial institutions in special arrangements for no consideration—for that is what it is: no consideration. It is more than simply consequential to the running of a moratorium.
Various amendments in the group aim to prevent harm to pensions, and my probing Amendment 118 suggests that the PPF should be consulted in any compromise arrangement. It could or probably should be made stronger and require consent, but then I do not really need to speak to it because the noble Baronesses, Lady Drake and Lady Altmann, have come up with extremely sound, detailed amendments. I support them and commend them to the Government.
I realise that the Minister indicated in his email last night that some movement in this direction will happen. He has also said that the Government will give creditor rights, which is the issue covered by Amendments 63 and 64 in the name of the noble Baroness, Lady Drake, but the extent and effect of those rights is important. I therefore remain concerned. Changing the ranking of creditors also opens up questions about, “Why just that change?” There are arguments, with which I have a lot of sympathy, that say pension deficits should have a higher ranking in insolvency anyway, given their origin as deferred pay. We will come to other provisions on that in the next group.
I am now quite glad that we have not finished the pensions Bill because, if these new priorities are enacted, they will take a wrecking ball to the difficult consensus that was being reached on the speed of paying down deficits, and other provisions coming from the regulator regarding its powers and what it would do to make sure that deficits were paid down. We will certainly have to take into account these new circumstances in this Bill and seek follow-on protections if it proceeds largely in the format it is in at the moment.
In summary, this group has four sensible proposals, independently made from across the House, that have significant overlap: scrap the financial institution priority, which weakens the position of pensions; ensure that pledged securities are not sold without the consent of the PPF; amend the Pensions Act 2004 so that a moratorium is an insolvency event and triggers a PPF assessment period; and have the PPF involved, with vetoes, in restructuring arrangements. I commend a composite of those arrangements to the Minister and I hope that productive discussions can follow because, welcome though the moves already flagged are on the PPF having creditor rights, we need to make sure that they fit the bill and that pension deficits do not still face significant losses.
Lord Lennie (Lab) [V]
My Lords, I had rather thought that the Minister would speak at the beginning of this debate, as that might have obviated some of the discussion that we have had to have; he has not yet fulfilled what the Report stage amendments will be, based on the letter that he produced last night. There seem to be shared concerns among all speakers about the relative position of debt—finance debt, pension debt—and the weakness of the PPF. Does it or does it not have a seat on the discussion body? Would that be at the beginning of the discussions or, as someone put it, just a cc or copying in of the PPF into the information? Will the risk of gaming through acceleration of a company into insolvency by those who seek to gain from that position be guarded against? And so on.
At this stage, we should at least thank the Minister for his reconsideration in advance of signalling that there will be moves at Report stage. Whether they will be sufficient moves we will have to wait and see. This may not be the last word on these matters, but it may go some way towards putting in place a sensible, if not ideal, position for the PPF and the defined benefit pension scheme trustees, in the event of insolvency moratorium or restructuring plans. It is not yet clear how far he is prepared to go and it is a complex issue, as we have heard from all the speakers.
Secondly, I want to express my huge appreciation and admiration for the noble Baronesses, Lady Drake and Lady Warwick, from the Labour Benches, assisted by the noble Baroness, Lady Altmann, and the noble Lord, Lord Balfe, from the Conservatives, in their pursuit of this matter. It is hugely important to everyone that we get this right. The 2004 protection fund legislation was profound, important and lasting. It should not be put at risk by what we are attempting to do in response to the Covid crisis, whether on a temporary or permanent basis. They deserve our thanks and praise for the thorough way in which they have conducted themselves. There is much more to come but, for now, we will have to await the amendments and judge on Report whether those intentions have been fulfilled.
Finally, I urge the Minister in the meantime to take up the offer of discussions made by the noble Baronesses, Lady Drake and Lady Warwick, in advance of Report stage, to see if they can iron out any creases that there may be in what he may propose.
Lord Callanan
I thank all noble Lords for tabling amendments on this important topic. I first clarify to the noble Lord, Lord Lennie, and others that I thought it would be helpful to email noble Lords last night to inform them of my intention to table an amendment on Report because, under the new procedures, I was not able to stand up at the start of this grouping to tell people in advance. I thought it would be helpful to give people advance notice of this to stop them asking for all the things that we were going to do anyway. I thought that it might have played some part in curtailing the debate on this.
I start by reminding the House that both the moratorium and the restructuring plan are not insolvency events—they are company rescue procedures. Where the company itself can be saved as a going concern, obviously, the returns to all creditors and stakeholders of the company will be better.
I turn specifically to Amendment 20 for Great Britain, tabled by the noble Baroness, Lady Drake, and others, and Amendment 39 for Northern Ireland. I do understand the intentions behind these amendments. However, removing financial services contracts from the list of liabilities for which a company does not have a payment holiday when it enters a moratorium would mean that the company does not have to pay these liabilities during the moratorium.
The purpose of excluding these contracts from the payment holiday is to ensure that the moratorium does not affect existing financial services legislation or the operation of the financial markets, and that financial markets participants continue to have legal certainty to facilitate the efficient functioning of those markets. Not excluding them could have potentially severe consequences for the operation of the markets and, in turn, the stability of the financial system and the availability and cost of these products.
In addition, it is important to recognise that financial services firms are a key part of making the moratorium provisions work. Critically, they are not excluded from the moratorium, as I said on the last grouping, where they are a creditor to a company in distress so that they continue to support those companies. It is recognised that not excluding financial services contracts from the payment holiday definition could remove the incentive for these firms to continue to provide finance. That could leave companies in financial difficulty in a far worse-off position than they would otherwise be.
I understand the purpose of these amendments, and the concerns that many noble Lords raised during this debate and at Second Reading on the super-priority of financial services debts in the moratorium. In discussions with the various stakeholders, it has become clear that unpaid financial services debts that have been accelerated for payment during the moratorium receive this super-priority status. We would not want this to provide an incentive for financial services firms to jeopardise the rescue of businesses during a moratorium by accelerating financial services contracts for payment, so as to benefit from this super-priority of their debt in a subsequent insolvency. I will therefore table an amendment on Report to address this issue, and I thank noble Lords who have raised it with me.
I turn to Amendments 27, 63, 64 and 118. Again, I understand the intentions of these proposals. We can all agree that recent high-profile insolvency cases that featured large deficits owed to the defined benefit pension scheme were worrying. We all recognise the uncertainty that this brings for employees, both past and present, in such cases. Again, I assure the Committee that the Government recognise the need for safeguards around these pension schemes and have been working closely with key stakeholders over the last few weeks on these issues. We have reflected on the concerns raised, so I confirm that it is our intention to table amendments on Report to ensure a greater role for the Pension Protection Fund and that pension protection is made clear in the Bill. Again, I am grateful to noble Lords for their engagement on this issue. Both the amendments that I have mentioned will be tabled tomorrow to give noble Lords the opportunity to study them in advance of Report.
Let me address some of the points made. Initially, the noble Baroness, Lady Drake, and I think the noble Lord, Lord Fox, asked—he may not have done so—whether pension schemes can be crammed down. The protections that apply generally will cover a pension scheme included in a restructuring plan proposal. There are strong protections, including a high threshold for class support of 75%, and where cross-class cram down is requested and none of the members of a dissenting class are worse off than they would have been under the next most likely outcome. Importantly, even if all the statutory requirements are met, the court can refuse to sanction a restructuring plan if it is fair and equitable for it so to do.
My noble friend Lady Altmann and, on this occasion, the noble Lord, Lord Fox, asked about the debt priority of pensions and whether the current ranking is appropriate. When insolvency occurs, there is a balance to be struck in considering the order in which those owed money are paid out of the available assets. There are seldom enough funds to pay all creditors in full in an insolvency. To ensure fairness, the law requires that available funds be distributed in a certain order. Unsecured creditors are paid once the secured creditors and preferential debts, which of course include employees’ hard-earned wages and salary, have been dealt with; they share the funds that are then left over. Any deficit owed to a pension scheme ranks alongside all other unsecured creditors, which will inevitably include trade suppliers, some of which will be small and micro companies. I confirm to the noble Lord that this legislation has not changed the existing provision and that it carries on.
With those explanations, and with the notice I have given of the proposed government amendments on Report, I hope that I have provided sufficient justification for the noble Baroness to withdraw her amendment.
Baroness Barker (LD)
I thank the Minister for his reply. I had the pleasure of taking part in the legislation that set up the Pension Protection Fund in this House many years ago and I remember that we spent a considerable amount of time—much more than we have done today—looking at the issue of moral hazard and questions of timescale and decision-making. Whatever the Government come up with in the context of this Bill, people will be forced to make decisions that in ordinary circumstances they would take over several months in which they could weigh up competing claims for priority. They will have to do that very quickly.
I recognise that the Minister said that he intends to publish his amendments tomorrow, but will he undertake to have a virtual meeting with the many Members of your Lordships’ House who are clearly well versed in this subject, perhaps on Thursday, in order for there to be time for considered amendments from the Opposition on Report? The Minister is likely to find that there is not a great distance between his Benches and ours on this matter, but there may be some questions of nuance and technicality, and it would be good, for better legislation, if there could be a discussion on Thursday.
Lord Callanan
Without giving a specific commitment about Thursday, because I have a number of things in my diary, not least because I am answering further Questions in this House, I will attempt to ensure that the forum mentioned by the noble Baroness takes place before Report. Noble Lords who take an interest in this matter will get the opportunity to talk to me and the various Bill officials who are handling what is, I am sure she will accept, a complicated area of law.
Baroness Drake [V]
I thank the Minister for his reply and I am grateful for the advance notice from him yesterday evening, which I took in the spirit in which he gave it. It allowed us to make our contributions more relevant, so I thank him for that.
As my noble friend Lady Taylor of Bolton observed in the previous debate, the fast-tracking of emergency measures in the light of Covid is combined in the Bill with radical, permanent changes to the status and rights of creditors and stakeholders. This House and indeed Parliament have not had time to address the consequences of that and their significance, and we are beginning to see quite serious consequences—maybe unintended consequences—being revealed.
The moratorium is not an insolvency event, but it is the start of a process that moves towards insolvency or restructuring and it does trigger a change of creditor status. While I completely accept that a strong UK economy needs a strong, functioning financial market, there is also a question of balance. The definition of finance debt in the Bill, which is given superior status, is drafted very widely, way beyond being a simple issue of banks. On the arguments that noble Lords have put today, that balance between protecting the pensioners, on which the insolvency laws were changed back in 2004, as opposed to the interests of the financial markets, is tilted in the Bill against the pensioner and risks us going back to the position that existed in 2004 where pensioners were not protected sufficiently—or in that case, not at all—under UK insolvency laws.
I thank noble Lords who have spoken in this debate. Throughout Second Reading and Committee, we have put our concerns very clearly about how this Bill impacts the framework of protection for pensioners that has been finely crafted and built up over 60 years. I welcome the Minister’s statements because they are a recognition of the concerns that we have all been expressing.
I look forward to seeing the government amendments but hope that the Minister will reflect on the seriously held views expressed today across the House on protecting pension schemes, their members and the lifeboat scheme. If it is possible to have any discussion so that these could be considered further, that would be helpful. In view of the significance of this matter, I may wish to return to it on Report, but I beg leave to withdraw Amendment 20.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
We now come to the group beginning with Amendment 23. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate, and that any Member wishing to press this or any other amendment in this group to a Division should make that clear in debate.
Amendment 23
“( ) the prescribed part of a company’s net property available for the satisfaction of unsecured debts under section 176A of the Insolvency Act 1986”Member’s explanatory statement
This is a probing amendment to discuss the effect of priority advancing on unsecured creditors and in particular pension fund deficit, notwithstanding the power for rules to rank the order in inserted section A18.
Baroness Bowles of Berkhamsted [V]
My Lords, I will also speak to the other amendments in this group. In some ways, I see this group as a continuation of the previous debate concerning the effect of the moratorium on pension funds and small companies. Amendment 23 inserts the prescribed part for unsecured creditors into the A18 priority. It should in fact have had an extra condition to it that said “when there is a pension scheme” but, in the amendment rush, that somehow got left off. Noble Lords will see that in the explanatory statement I did reference pensions as being of particular relevance.
This was an idea I had as part of the continuing story of the adjusted insolvency waterfall and the damage that can be done to pensions. My objective was to probe how else the prescribed part could not be diminished or how there could be some form of compensating balance. Another way could be by putting an extra or reserved part into the higher priority, designated as a first tranche reserved towards pension deficit, with any remaining pension deficit still sharing in the later general pool of the prescribed part. For example, if the prescribed part is raised to 30% so that there is more available in general for pension deficits, as other noble Lords have suggested, could the extra 10% be moved to be given a higher exclusive priority reserved for pension debt alone?
As I said before in the group on pensions, the Government have lifted the lid on changing priorities, and what has to date been accepted as an uncomfortable compromise regarding the position of pension deficit is now open to challenge. Why should there not now be some extra reserved part or special preference in the mix, especially given the point made more than once already that pensions really belong with wages and salaries? They should never have been demoted to unsecured creditors.
As a generality, I see the raising to 30% as beneficial, not just for making more available for pension deficits but also for SMEs. Irrespective of whether there is any changed priority as part of the compensating measures that one will have to start looking at, the rise to 30% —which has been proposed before—is given more impetus in the light of what is happening in the Bill. I beg to move.
Lord Hendy [V]
My Lords, my contribution dovetails with that of the noble Baroness, Lady Bowles, whose remarks I support. I speak to Amendment 56, the purpose of which is to preserve for the unsecured creditors a larger share of the assets available for distribution than the legislation currently provides. The legislation recognises that something must be preserved for them, but the question is: how much?
The first part of our amendment seeks 30% of the “prescribed part” of the company’s property. This is an arbitrary figure, intended to be reasonably fair. The problem is that the “prescribed part” is fixed by a formula and is capped. I understand it to be £800,000, or thereabouts, but I confess that I am no expert on this. Consequently, 30% may be a very small sum and spread very thin. The second part of the amendment therefore proposes that, in any event, if assets are being sold to pay debt, as is usual, at least 30% of the proceeds should be reserved for the unsecured creditors, leaving 70% for the secured and other creditors.
I add a word about unsecured creditors. Included in this, for reasons I touched on earlier, will be much of the debt owed to employees of the company, which falls outside that preserved for preferred creditors. The unsecured creditors also include all the workers for the company who are not classed in law as employees but who are nominally self-employed or engaged through a personal company. This is a significant sector of the workforce—over 5 million people in total.
As I mentioned earlier, it is right that workers should have priority because, unlike secured creditors, they cannot diversify the risk of the company becoming insolvent, and their stock of labour is ever-diminishing. There is another reason that they should be given preference: they spend their remuneration; they do not put it in hidden bank accounts in the Cayman Islands. They spend it because they and their families have to live on it. This creates demand and is good for the economy and for business.
Also included among the unsecured creditors are the many SMEs in the company’s supply chain. This may involve dozens of suppliers who have supplied materials, items or labour on credit, but cannot recover them. In turn, they may employ hundreds or thousands of workers. It is right that, in a complex and interconnected economy, unsecured creditors and their workers should be guaranteed an appropriate slice of the cake.
Lord Mendelsohn [V]
My Lords, I reinforce my support for Amendment 56, in my name and those of my noble friends Lord Hendy, Lord Hain and Lord Monks, and Amendment 59, in the name of my noble friend Lord Stevenson of Balmacara. I had intended to introduce amendments in these areas, but these are far better crafted than I could ever have achieved.
I would like the Minister to address the operation of these arrangements, the changes to the status of different creditors and how these will be properly balanced to operate as intended, rather than to allow abuse and preserve value in the deal, and how changing creditor status provides for a successful rescue of the company.
We have to appreciate that monitors, moratoriums and restructurings under this legislation are still likely to be in a minority of cases, especially if the comparisons for evaluations, or evaluating the condition of the business, provide both a high bar and ample scope to game the outcome. The majority of cases will still be covered under a going concern administration, whether that leads to a pre-pack liquidation sale or a scheme of arrangements to maintain the company. In many circumstances, the need for protections is even greater.
The new restructuring regime, which should be significantly more attractive, has created a lot of complications by relying on the model of creditor-in-possession financing rather than debtor-in-possession financing. The crucial difference is that this means that external financing is encouraged and given super-priority status, while unsecured creditors can be further disadvantaged by both existing debts and further trading risks. Debtor-in-possession arrangements generally encourage existing shareholders, creditors and finance holders to participate in the future rescue of the business. The amendments would ensure that in this layering of priorities, the weakest in line are not the ones that the system continues to place at a disadvantage. It is important that the Minister should indicate whether the Government are willing to provide extra protections for unsecured creditors and workers who have an unsecured credit with the business.
Have the Government considered a debtor-in-possession financing model and will they consider allowing this in the future? In the spirit of providing a floor to support unsecured creditors, what flexibility can they look for in the system and how are they expected to operate, so that they can participate in the future upside, be that an equity upside or an arranged scheme, thereafter?
Finally, I support the amendments tabled by the noble Baronesses, Lady Bowles and Lady Neville-Rolfe. Can the Minister make it clear how these decisions will be reviewed and what role the Government expect the Insolvency Service to play in order to make sure that abuses can be dealt with and that all forms of creditor can be properly balanced and ensured?
Baroness Neville-Rolfe [V]
My Lords, as time is short, I will focus on my Amendment 60. A court of administration normally involves pre-packs, and that is why, with the support of my noble friend Lady Altmann, I want to provide a quick and easy way of ensuring that the power we gave HMG in the Small Business, Enterprise and Employment Act 2015 can be restored. This power was the victim of a sunset clause and a delay in making the necessary regulations. There are later amendments that we may reach today on pre-packs and the encouragement of the pre-pack pool. All of them reflect the fact that a group of us across the House who spoke at Second Reading, including the noble Lords, Lord Vaux and Lord Mendelsohn, think that we need early action on pre-packs. I imagine that we are all rather disappointed—although the usual opportunity for a discussion in the Bishops’ Bar is not available—by the Minister’s response at Second Reading. His suggestion was that strengthening professional standards and existing regulation would be adequate, and if not, there could be legislation at a future date —a sort of mañana.
My amendment is very simple: it would give the Government back the power to make the necessary regulation on pre-packs but it would sunset that power after a year, both to provide the incentive for speedy resolution of this issue and to avoid any unwelcome use of the delegated power for other purposes down the line. I would obviously be delighted if the simple sunset clause I have used in Clause 62 might also help us to consider and find a path to resolving some of the important delegated powers issues we were discussing earlier; I am very hopeful that the Government will be listening in that regard.
I hope that my noble friend the Minister and his department will listen to those of us who have concerns and agree to amend the Bill to deal with the pre-pack issue, perhaps in the way that I have proposed.
The Deputy Chairman of Committees
The noble Lord, Lord Adonis, does not seem to be in his place in the Chamber, so we will go to the noble Baroness, Lady Altmann.
Baroness Altmann [V]
My Lords, I will be brief. I support the amendments in this group. Amendment 23 from the noble Baroness, Lady Bowles, and the noble Lord, Lord Fox—which the noble Baroness, Lady Bowles, explained very well—helps to explain the importance of increasing the protection for unsecured creditors being pushed further down the list of priority by the measures in this Bill. Following on from some of the remarks by the noble Baroness, Lady Bowles, I suggest to my noble friend the Minister that the Government could even consider offering super-priority for less than a Section 75 debt but still recognise the debts owed to the pension scheme, if it has a deficit. That could be in the form of Section 179 debt, which would at least cover the PPF level of benefit, or even for technical provisions, so that at least that has some extra security, especially in light of the current level of annuity rates following extensive quantitative easing and the extra cost of Section 75 debt.
The Deputy Chairman of Committees
The noble Lord, Lord Hain, has had to withdraw, so I call the noble Lord, Lord Palmer of Childs Hill.
Lord Palmer of Childs Hill [V]
I did not realise someone was withdrawing. I asked to speak mainly to support Amendment 60, but also to inquire whether this will achieve what the movers want to achieve. With sale to connected persons, there is always a worry in any liquidation or moratorium as to whether those connected persons are getting a benefit, to the detriment of other creditors. It is also a fact that very often a sale or arrangement with connected persons is a way of saving a company by connected persons taking some of the business out of the company. If there is a situation in which that company can survive enough to pay all its creditors, sales to connected persons could be a valuable tool. I just want to ensure that the Minister says this is an open book and can help in some ways and police in others.
Lord Fox
My Lords, we have heard descriptions of a series of power imbalances. There are two large, powerful entities on the scene; one is covered by this Bill and the other is not. One is the banks and financial institutions, and the other is of course HMRC, which is covered in the Finance Bill but not in this. My noble friend Lord Palmer referred to that as the elephant in the room. Those two wield the power, and then we hear the tale of small creditors, small businesses, pensioners and workers eking out a return.
In proposing this Bill, the Government have destabilised what had been a static relationship. Things are moving, and we need to understand in detail how the Government see all this movement shaking out. The Bill, letters and now assurances from the Minister have moved everything around. It is still not clear to me—perhaps it is clear to others—where the power has moved in the end. At the moment, it still looks as if the financial institutions will get increased power as a result of this Bill and HMRC will get increased power as a result of the Finance Bill. If that is not the case, I am happy to be surprised by the Government.
I will say just one other thing. I welcome the suggestion from the noble Baroness, Lady Altmann, to perhaps look at different levels of pension fund debt below that of the Section 75 debt. That could be one way of alleviating some of the concerns. I hope the Minister is able to catch up on what the noble Baroness, Lady Altmann, had to say just now, because there was some wise suggestion there.
The Deputy Chairman of Committees
I call the noble Lord, Lord Stevenson of Balmacara. Is he there? No? I call the Minister, the noble Baroness, Lady Bloomfield of Hinton Waldrist.
Baroness Bloomfield of Hinton Waldrist (Con)
I thank noble Lords for their amendments on these important issues and their comments in this short debate. The amendments include making additional changes to insolvency legislation in the provisions regarding the prescribed part, which is the amount of a company’s net property that must be reserved for the benefit of unsecured creditors when a company enters insolvency. There is what I take to be a probing amendment, which will provide the opportunity to discuss the effect of priority on creditors, such as pension fund deficit, as flagged by the noble Baroness, Lady Bowles. There is also an amendment in this group from my noble friend Lady Neville-Rolfe to enable the regulation of pre-packs and connected sales in administration. As this matter is being dealt with in group 10, I hope my noble friend will not mind if her amendment is spoken to in full in that group.
The measures in the Bill are intended to help companies maximise their chances of survival during the Covid-19 emergency, to protect jobs and to support the recovery of the economy. That is why other measures that would not alleviate the impact of the current emergency have not been included in the Bill.
I shall first deal with the probing amendment from the noble Baroness, Lady Bowles, and the noble Lord, Lord Fox. It is correct that the priority rules, which apply to some debts when a company enters insolvency following the end of a moratorium, change the way in which a company’s assets are allocated among different types of creditor, but the Government consider there to be compelling reasons why the moratorium provisions should give priority to certain types of creditor. These relate to rent and goods and services supplied during the moratorium, which will enable the company to pull through as a going concern.
For example, they include amounts owed to employees —which, as I am sure noble Lords agree, should rightly be considered a special category—and liabilities involving financial services, where default could result in the company facing a demand to repay a much larger amount, which would prevent the rescue of the company as a going concern. For the moratorium measure to operate successfully, it is essential that providers supplying these types of goods and services during the moratorium have some level of assurance that they will receive payment for those supplies.
The amendments from the noble Lords, Lord Hendy, Lord Hain, Lord Monks and Lord Stevenson, would change the value of the prescribed part and alter the way in which an insolvent company’s property is distributed between different categories of creditor. The rules for calculating the prescribed part were recently amended by statutory instrument in April this year. The noble Lord, Lord Hendy, asked how this was calculated: the proportion set aside for payment to unsecured is calculated at 50% of the first £10,000 of assets plus 20% of the rest up to—he was correct—a current cap of £800,000. This amendment was as a result of a consultation that ran between March and June 2018. As a result of these changes, the maximum amount of the prescribed part was increased from £600,000 to £800,000.
When this issue was consulted on, respondents expressed concern that further alterations to the rules for calculating the prescribed part were likely to have an adverse effect on lending, as floating charge holders may not be able to accurately assess their level of risk and anticipated recovery in the event of the debtor’s insolvency.
The noble Lord, Lord Mendelsohn, asked why the Government have not introduced measures to support the provision of debtor-in-possession rescue finance for distressed companies, in line with other jurisdictions, such as the Chapter 11 arrangements in the US. While the current UK restructuring framework does not provide explicit debtor-in-possession finance provisions, it allows rescue finance to be used to help rescue a financially distressed company. The Government previously consulted on various ways in which rescue finance could form a more prominent part of the restructuring package but, at that time, feedback from stakeholders was that the new measures would still allow for rescue finance with all the features found in other jurisdictions. I hope that answers the noble Lord’s question.
Lastly, the noble Lord, Lord Fox, mentioned the Finance Bill and HMRC taking precedence. I am not sure that he is aware that its precedence relates only to moneys it holds on behalf of employees, such as national insurance. For the reasons I have set out, the Government are not able to accept these amendments. I hope the noble Lords will therefore withdraw their amendments.
The Deputy Chairman of Committees
I have received a request to speak after the Minister from the noble Lord, Lord Stevenson of Balmacara. We were unable to hear him earlier due to a technical error.
Lord Stevenson of Balmacara [V]
My Lords, I want to make a brief point. The Minister’s response was interesting but very much couched in the existing paradigm. We seem to be in a situation where, as somebody said, the Government have lifted the lid on the debate over how we work out what goes into the insolvency waterfall, as it were, and how to compensate those who lose out as a result of that compression. Pensions should be part of wages and salary; they should not be where they are. Small businesses always seem to suffer. Thirty per cent is just a figure; it is beneficial but it does not go to the heart of the problem of how we deal with creditors and who comprises the neediest in terms of the analysis of what must be paid back and how that should be organised.
As the Minister was trying to argue, I think, there may be a short-term fix to get this thing back on the road, but these reforms will not be sufficient to resolve the inadequacies of the present arrangement. Does she agree that the time has come—but perhaps it is already too late—to review this area critically, with particular reference to issues such as debtor-in-possession financing? Obviously, there is a crisis because of Covid-19; that crisis provides an opportunity to say that we need to look at this issue again. This would be a good time to do so.
Baroness Bloomfield of Hinton Waldrist
I take the noble Lord’s point. The point of the Bill is to provide emergency relief in the current crisis. The restructuring planned provisions that we have tabled and are taking forward in the Bill are flexible and will permit complex funding arrangements to be used in a company rescue. This will bring our regime more in line with other jurisdictions where debtor in possession rescue finance is well established. These measures will add to the UK’s existing first-class restructuring and insolvency framework and ensure that it keeps pace with developments in other highly regarded international jurisdictions.
Baroness Bowles of Berkhamsted [V]
My Lords, I thank everybody who spoke in this wide-ranging debate. We have explored further how the Bill has been a catalyst for looking at some long-standing issues with the fairness of the insolvency waterfall in general. I hear what the Minister says about the April update but that is still broadly based on the original tenets.
As the noble Lord, Lord Hendy, explained so well, the situation is different in modern times, with many more what would have been employees and other workers falling to the unsecured creditors. It is also they who are squeezed in the robbing of Peter to pay Paul that goes on in the adjustments to provide the impetus for a moratorium. We heard an interesting suggestion from the noble Baroness, Lady Altmann—one she has made before, perhaps in connection with the Pensions Bill—that, instead of looking at Section 75 debt, which tends to make you throw up your hands in horror and run away, we should look at technical provisions or the amount that would go to the PPF; that is another part that could be preserved.
I thank noble Lords. We have more food for thought. I accept that new Clause A18 is perhaps not the place to introduce new priority protection—that probably belongs more in Schedule 3—but these matters are serious enough that they must be brought back at a later date. For now, I beg leave to withdraw the amendment.
The Deputy Chairman of Committees
We now come to the group beginning with Amendment 26. I remind noble Lords that anyone wishing to speak after the Minister’s reply should email the clerk during the debate. The Minister should allow me to call these Members before seeking a decision on Amendment 26, and anyone wishing to press this or any other amendment in this group to a Division should make that clear in the debate.
Lord Callanan
“(7) This section does not apply in relation to a floating charge that is—(a) a collateral security (as defined by section A27);(b) a market charge (as defined by section A27);(c) a security financial collateral arrangement (within the meaning of regulation 3 of the Financial Collateral Arrangements (No. 2) Regulations 2003 (S.I. 2003/3226));(d) a system-charge (as defined by section A27).”Member’s explanatory statement
This amendment ensures that section A22 does not apply to a collateral security, market charge, security financial collateral arrangement or system-charge.
Lord Callanan
My Lords, these are a number of technical amendments tabled by the Government in my name to ensure that financial collateral arrangements, charges and securities are carved out from the effects of the moratorium. This is part of the Government’s intention to exclude certain financial services contracts from the moratorium.
I am conscious that time is getting on. I have an extensive speaking note and I can go through it in great detail if noble Lords wish me to do so, but it probably best serves the interests of the Committee if I stop at this point and let noble Lords who wish to contribute on this matter come in. I can respond at the end, rather than go through a lot of technical detail that might not be of interest to those present. That might be to the benefit of the Committee, given the late hour and the fact that we are pressed for time.
Lord Mendelsohn [V]
My Lords, I am encouraged by the Minister’s indication during the debate that the Government are open to amendments and it is useful to hear that they have published material relating to insolvency practitioners, even though I am yet to find out where we can get hold of it. However, I am not entirely satisfied by the Government’s assurance that they appreciate how to deal with some of the complexities that they have put forward. That is not least the case in this group of amendments. I would like to understand not the entire effect but the assumption of which particular cases and how many of them these amendments are likely to affect, and whether they are just technical or do in fact change some of the current core financing arrangements for larger companies.
While I welcome the progress towards a more flexible insolvency regime and appreciate the need for temporary arrangements to help to navigate the current emergency, this legislation, as necessary as it may be, ends up asking a lot more questions than it answers. The truncated process is of course, as many noble Lords have mentioned, wholly unsatisfactory not just for scrutiny but to allow the Government to consider these matters and others as they should. It defies logic that the process was done fully in one day in the other place.
It is not just that the impact assessment is based on out-of-date data and contradictory calculations; the permanent provisions were consulted on, although in their previous form they were never going to be implemented in such a piecemeal fashion. It appears to be widely accepted that it is not just the flaws but the time required to adjust this regime that will be complicated. The permanent measures will take longer to implement, and it will take time for people to get used to how they operate. The temporary measures are a bit too limited to operate in their own guise.
However, the Government cannot have it both ways. They cannot claim that these measures are to get things working in an emergency and at the same time widen the number of options, the required skills, the number of participants and the variety of arrangements required where practitioners or courts will need to be trained or practised in. And, of course, this omits some of the most significant elements that will still need to be addressed, such as whether HMRC will have a preference or take an active role in this, as well as the role of the pre-pack regime and others. It is not just a question of all the delegated powers that noble Lords have spoken so eloquently and raised such meaningful and compelling objections and warnings about. It is also that the regulatory regime is weak and unclear, and so much of this should be in the Bill.
However, we are where we are, and the Government are going to do this whatever we say. Bluntly, this is not this House’s first rodeo, but it is our job to be realistic. This legislation will require further regulation and change, and much work is already taking place in a number of the agencies or in other places that is likely to lead to measures being added to the legislation at a later date. Therefore, we should address how this will work best in the future.
The most important element here is to receive proper reassurance from the Minister of an enhanced process to deal with the implementation, review, secondary legislation and regulation of this legislation, so any clear statements and undertakings in this regard would be important, whether given here or on Report. Will the Government create a post-legislative scrutiny process or, for example, would they be keen for this House to establish a process or a committee that could provide a meaningful role? Will the provision of information be sufficient, and what sort of information will be provided to this House? What will be measured by government, so that we can properly evaluate the operation of the legislation?
What other reviews or agencies, from the professional bodies to the Insolvency Service or the courts, are currently being consulted? What part of these discussions can we be told now, and what will be made available in the future to help resolve concerns or help us to have a debate prior to legislation or regulation being brought forward? Can clearer statements be made by Ministers about how they expect it to work, so that the courts have a clear indication on what to make rulings on and how they should do so? I suspect that the courts will be slightly busier than the Minister anticipates, not least because financial indemnity insurance will provide a very adequate target for people to exercise some degree of accountability in the courts.
Of course, the affirmative procedure for regulation is all that we have, but will the Government look at how this process can be enhanced with a greater provision of information, and possibly consultation, prior to the regulations being tabled? Any such assurances on how we will deal with where we are, and how we might deal with what might evolve into a better and more robust system, would be gratefully received.
Lord Thomas of Cwmgiedd [V]
In view of the course that the debate has taken and the statements by the Minister, I can be very brief. I welcome Amendments 92, 104 and 106, which ensure that unsecured bonds are caught by the exclusions of the moratorium and ipso facto provisions. However, there are many other technical issues to address, and I very much hope that this can be done by further government amendments before Report. That would certainly be preferable to making changes and correcting errors through the regulation-making powers. I welcome what the Minister has said so far and very much look forward to seeing the further amendments dealing with these technical problems.
Lord Fox
My Lords, the belated arrival of these amendments is further indication of the half-baked nature of this Bill. We were assured that the insurance for the permanent parts of this Bill was that they had already been through an extensive consultation period, which I guess they have. However, these important amendments have arrived in a lump afterwards, so that consultation process must have been flawed. I was looking forward to the Minister’s piece-by-piece description of each one. I can understand perhaps why he has decided not to do that, but at the very least, to paraphrase what was said earlier, we need to know how Her Majesty’s Government view these measures working. What problem are they intended to solve and what was the process by which these amendments arrived in the Government’s purview?
Lord Stevenson of Balmacara [V]
My Lords, I had the benefit of a brief discussion with the Minister yesterday on these amendments. If we can get a response to the points made by my noble friend Lord Mendelsohn and the questions asked by the noble Lord, Lord Fox, we will be well served.
Lord Callanan
I am grateful for the patience of noble Lords. I propose to deal with the points raised by the noble Lord, Lord Mendelsohn. As for the technical amendments talked about by the noble Lord, Lord Fox, and other noble Lords, if it is acceptable to them, I shall write to them with the details of what we are proposing and how we propose to do it—soon, as the noble Lord, Lord Fox, reminded me. I shall get an email out to them as quickly as possible which I hope will resolve their issues, but there are no issues of principle or policy involved, since these are simply technical amendments that I think reflect the reality that the Bill, and the many temporary provisions, were drafted at pace. It is a long and complicated Bill and these issues have arisen that we wish to correct.
The noble Lord, Lord Mendelsohn, asked about the reporting structures through which the effectiveness of the measures in the Bill can be monitored. I can tell him that the Insolvency Service has for many years published quarterly national statistics, covering both corporate and personal insolvency, approximately four weeks after the end of the quarter. In response to the pandemic, the Insolvency Service now additionally publishes monthly official statistics, covering corporate and personal insolvency, approximately two weeks after the end of the month. Data on the use of company moratoriums and flexible restructuring plans will be published regularly, either by the Insolvency Service or by Companies House through their existing schedules of national and official statistics. Under the Better Regulation framework, the Government are required to publish a post-implementation review of all these measures not more than five years after commencement and the Insolvency Service is currently considering its plans for monitoring and evaluation. We will, of course, publish further guidance as needed.
With that—and I am grateful for the patience of the Committee, I know that time is getting on—I beg to move.
Lord Callanan
“(4) Subsection (1) does not apply to a provision in an instrument creating a floating charge that is—(a) a collateral security (as defined by section A27);(b) a market charge (as defined by section A27);(c) a security financial collateral arrangement (within the meaning of regulation 3 of the Financial Collateral Arrangements (No. 2) Regulations 2003 (S.I. 2003/3226));(d) a system-charge (as defined by section A27).”Member’s explanatory statement
This amendment ensures that section A50 does not apply to a collateral security, market charge, security financial collateral arrangement or system-charge.
Lord Ashton of Hyde (Con)
My Lords, due to the broadcasting restraints, the House was due to rise at 7 pm and I am grateful to the broadcasting team for extending this to 8 pm this evening. The usual channels agreed the scheduling of the Bill and that Committee should be completed today, so I urge all noble Lords to be as brief as they can when speaking to their amendments to allow us to finish in the remaining time this evening.
Amendment 38
“Moratoriums in Great Britain: time-limited effect and renewal
(1) Part A1 of the Insolvency Act 1986 (inserted by section 1 of this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2). (2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part A1 of the Insolvency Act 1986 should continue to have effect for a specified further period of no more than one year.(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before and approved by a resolution of each House of Parliament.(4) The Secretary of State must keep under review the operation of Part A1 of the Insolvency Act 1986 during the period for which it has effect.(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”Member’s explanatory statement
This new clause would terminate the free-standing moratorium provision for Great Britain on 30 September 2020, subject to temporary renewal for up to one year.
Lord Fox
My Lords, Hansard will attest that I have been the very spirit of brevity thus far, and I will try to continue. This is about sunsetting. We heard, particularly when debating the second group of amendments, the very deep concerns people have about the permanent nature of this legislation being brought in under an emergency process. Indeed, the very announcement that the Chief Whip has just made underlines the problem we have with this Bill, in that there are very profound changes being proposed and we are trying to rush them through. We are being asked to be brief on issues that could determine the future of people’s pensions, jobs and very livelihoods. It is serious stuff, but I think we all recognise that there is a job to be done and work to do and there is a need for legislation.
One way to do it, and the way the Government to propose to do it, is to take upon themselves really unprecedented secondary legislation powers and to mix and match and make this work over time. For my part, and for the part of the powerful committees of this House, that is the wrong way around: it is for Parliament, rather than for the Government, to change the way in which we structure this legislation. The alternative is to put a time limit on the legislation and that is what Amendment 38 does—and in different ways what the other amendments in this group do.
I shall not labour that point because we have all talked about the inadequacies of the Bill and about the fact that there is too much movement. We do not yet understand the creditor waterfall or where pensions sit here. There is a great deal about this legislation that we do not yet understand, although we understand the need for it and the need for haste. Therefore, putting a backstop of two years on this legislation gives the Government a chance to make some changes, if necessary, and it gives Parliament a chance to draw a line under this matter, to debate it properly, to take its time and to deliver proper legislation that takes us far into the future. I beg to move.
The Deputy Chairman of Committees
I call the noble Baroness, Lady Neville-Rolfe. She is not there, so I shall call the noble Lord, Lord Stevenson of Balmacara.
Lord Stevenson of Balmacara [V]
My Lords, the point raised by the noble Lord, Lord Fox, is self-evident. We have already covered much of its ground, so I do not think that anything else needs to be said. I believe that the best thing is for the Minister to respond directly to the debate.
Earl Howe (Con)
My Lords, I thank the noble Lord, Lord Fox, for tabling these amendments. As he said, they seek on the one hand to time-limit the period within which the moratorium provisions are in force and require a review of the operation of the provisions to be carried out, and, on the other hand, to limit the ability to extend the sunset date of the powers to make temporary amendments to insolvency and related legislation in Clauses 18 and 26. Here, I am referring to Amendments 68, 69 and 74, which I will cover as they are in this group.
I shall start with the moratorium. As the noble Lord knows, the point of this measure is to give financially distressed companies breathing space from their creditors so as to pursue a rescue or restructure. It forms part of a package of rescue tools in the Bill that will help ensure that viable companies do not fail, thereby saving businesses and jobs. This new procedure will of course be useful during the Covid-19 pandemic but it will also have a longer-lasting benefit to the economy after this period. Therefore, making this measure temporary will serve little purpose. Doing so would, instead, create uncertainty. I ask the noble Lord how a financially distressed company could conduct its rescue planning without some assurance that the restructuring tools would still be available after a certain point in time.
All the permanent provisions contained in the Bill, including the moratorium, have not just been developed in the short time since Covid-19 first appeared; rather, they have been subject to a considerable period of consultation and engagement dating back to 2015. This process included the then Government’s review of the corporate insolvency framework public consultation in 2016 and, since then, there has been an extensive period of engagement with a wide range of stakeholders. The measures have been developed and refined over several years against a backdrop of strong calls to introduce them as early as possible to ensure that the UK keeps pace with restructuring reforms introduced in a number of other jurisdictions and to ensure that we remain one of the top restructuring hubs in the world.
Furthermore, I assure the noble Lord that the Government take their role in reviewing legislation very seriously. We will monitor information and feedback from stakeholders and the industry on the effectiveness of the new insolvency procedures generally. In due course, we are likely to want to commission a more formal evaluation of the impact, and a post-implementation review will be conducted in line with Better Regulation guidance. However, it will be important to ensure that the new measures have sufficient time to bed in before doing so.
Turning to Amendments 68, 69 and 74—which, I dare say, my noble friend Lady Neville-Rolfe would have introduced but the noble Lord, Lord Fox, has his name attached to them—I am grateful to both noble Lords for bringing up the matter of the sunsetting of the powers to make temporary changes to insolvency and related legislation in Clauses 18 and 26. As the Bill stands, those powers may not be used after 30 April 2021, but this expiry date may be extended. This would be for a period of no more than a year, although the power to extend can be used more than once. The amendments would either remove the powers to extend the expiry date, which would mean that the powers in Clauses 18 and 26 would sunset for ever on 30 April 2021, or would limit the power to extend so that it would expire two years after this Bill received Royal Assent at the latest.
I hope that it is helpful if I reassure the noble Lord and my noble friend in her absence that the purposes for which the Clause 18 and Clause 26 powers may be used are tightly circumscribed and very specifically set out in the Bill in the clauses that immediately follow in each case. These include helping to reduce the number of entities being forced to use corporate insolvency proceedings and mitigating the impact of Covid-19 on those proceedings, as well as the duties of persons with corporate responsibility.
The problem here is that we just do not know the long-term impact of this dreadful pandemic on business and insolvency, and we need to be able to move quickly to meet as yet unknown and unidentified challenges. Some of these may not become apparent for several months, so for the power to be most effective it must be capable of being extended.
Extension of the expiry date of 30 April 2021 may be made only after proper consideration and scrutiny by Parliament using the affirmative procedure. I hope that the noble Lord will agree that the existence of that parliamentary hurdle is not insignificant and will prevent the power continuing indefinitely if it is no longer needed.
So, for the reasons I have set out, I am not able to accept this group of amendments. I therefore hope that the noble Lord, Lord Fox, will agree to withdraw Amendment 38 and in due course will not press the other amendments in the group.
Lord Fox
I thank the Minister for his response. I did not expect the Government to accept the amendments, but there is an element of cake-and-eat-it here. On the one hand, the Government are saying that there needs to be certainty within the restructuring industry to make this happen; on the other hand, they are taking upon themselves the ability to change everything. It is quite clear that the Government expect to make changes, but they then say, “Well, after two years, Parliament will have had time to produce a replacement piece of legislation, which will have built on the legislation that we are seeing in front of us.” I do not accept the idea that the amendment somehow creates uncertainty because there is enough uncertainty already; it does not make that much difference.
The Government are running this through emergency process. By definition, an emergency has an end. The process of forever renewing things, which is essentially what is there, leaves a bad taste in most people’s mouths. I shall read the debate in more detail in Hansard tomorrow. In the meantime, I beg leave to withdraw Amendment 38.
Lord Callanan
“(7) This Article does not apply in relation to a floating charge that is—(a) a collateral security (as defined by Article 13DI);(b) a market charge (as defined by Article 13DI);(c) a security financial collateral arrangement (within the meaning of regulation 3 of the Financial Collateral Arrangements (No. 2) Regulations 2003 (S.I. 2003/3226));(d) a system-charge (as defined by Article 13DI).”Member’s explanatory statement
This amendment ensures that Article 13DD does not apply to a collateral security, market charge, security financial collateral arrangement or system-charge.
Lord Callanan
“(4) Paragraph (1) does not apply to a provision in an instrument creating a floating charge that is—(a) a collateral security (as defined by Article 13DI);(b) a market charge (as defined by Article 13DI);(c) a security financial collateral arrangement (within the meaning of regulation 3 of the Financial Collateral Arrangements (No. 2) Regulations 2003 (S.I. 2003/3226));(d) a system-charge (as defined by Article 13DI).”Member’s explanatory statement
This amendment ensures that Article 13HB does not apply to a collateral security, market charge, security financial collateral arrangement or system-charge.
The Deputy Chairman of Committees (Lord Bates) (Con)
We now come to the group of amendments beginning with Amendment 46. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate. Anyone wishing to press this or any other amendment in the group to a Division should make that clear during the debate.
Clause 10: Suspension of liability for wrongful trading: Great Britain
Amendment 46
“, unless the court has reason to suspect the person was in breach of the general duties under sections 171 to 177 of the Companies Act 2006 during the relevant period.”
Lord Stevenson of Balmacara [V]
We now come to a group of amendments that contain a large number of different issues and I will go through them relatively quickly. I hope that that is in order. Amendment 46 in my name goes back to the biggest concern raised with us by people submitting evidence and ideas for the Bill and how we might discuss it as we go through the various stages. In moving to make sure that directors of companies who might be approaching insolvency were not caught by fiduciary duties and attract a personal liability for any act or actions they might take, it was suggested that the Bill should contain a full list of all the existing powers to make sure that directors are not affected by these issues. They are to be found in Sections 171 to 177 of the Companies Act 2006, which specify penalties for not fulfilling the fiduciary duty. My question for the Minister when he comes to respond is: would it not make sense to include within the Bill the powers that will be relied on to ensure that directors are somehow not gaming the system by allowing companies that would otherwise have gone insolvent to carry on little longer for any purpose, whether good or bad? That is all I wish to say on Amendment 46.
Amendment 75 takes us back to the wider context and in particular to the question of how we can help small businesses. The Bill does not specifically pick out any strands for SMEs, although it will be of use to them when it comes into force. But we felt that other things should perhaps be considered at the same time as part of the package. The main idea we came up with was about the prompt payment code, which is a voluntary arrangement under which payments from and to companies are organised, and the Small Business Commissioner, who has particular responsibilities in relation to making sure that the prompt payment code works properly. They could be brought up to a more important role, particularly by making the prompt payment code statutory and by giving real powers to the Small Business Commissioner—we would see a huge difference. Many people out there, including the Federation of Small Businesses, would support this and I know that in previous years the Small Business Commissioner has also supported it, so I would be interested to hear the Government’s response.
Amendments 78 and 79 deal with the wider issue of what to do should the Government have the capacity and interest—I hope they do—to think harder and wider about the whole question of insolvency. It is obvious from the discussions that we have had today and earlier at Second Reading—and no doubt we will return to them on Report—that a lot of work still needs to be done in relation to insolvency. The issues that we have discussed today will help, there is no doubt about that, but, as we discussed in earlier amendments, they have also raised the lid on some of the issues that need further attention.
Within the various things that we know the Government are thinking about, there is work to change the way in which the Financial Reporting Council works. The Secretary of State previously indicated there would be legislation on that, so the amendment suggests that a report should be considered within a reasonable timescale to bring forward issues such as minimum standards for the oversight of auditors and the question about what happens to the big four—although they are named in the amendment, I should make it clear that this is not an attempt to hybridise the Bill—to make sure that standards are properly monitored and that the information reports of audit committees within companies are made more widely available, and various other points listed in the amendment. These are all good and sensible proposals. If they do not fit within this Bill, I am looking to the Government to respond by explaining how they can be brought forward in the future.
In a further look, building on comments made by the noble Baroness, Lady Bowles, when she introduced an earlier amendment about the need to reform Companies House, there are other corporate governance issues that the Secretary of State has previously mentioned. Again, it would be interesting for the Minister to see whether they will look at relevant powers that would bear on insolvency but also have a wider bearing on corporate governance. I look forward to the Minister’s response and I beg to move.
Lord Fox
My Lords, I will speak to Amendments 73, 78, 80 and 144. In previous groups we have discussed the need for the Secretary of State to return to Parliament with an update on the performance of the Bill, and relatively recently we discussed limiting the number of extensions. Amendment 73 moves on to making it mandatory for government to consider the effect the Bill is having on small and medium-sized enterprises, making it a criterion for deciding whether to extend the measures for a further six months. I know that the word “proportional” is in there somewhere, and that may well be how the Minister will explain this. However, it will reassure small and medium-sized businesses to be explicitly picked out by the legislation, saying that the effect on such businesses is important to the Government and central to their decision-making process.
As the noble Lord, Lord Stevenson, said, Amendment 78 adds a whole new clause that very much replaces the regulator. That would make the weather when it comes to regulating the financial industry. It is very unfortunate that, in the process of cherry picking some of the permanent measures that have gone into the Bill, this measure, which has of course had the same level of consultation as some of the measures that made it into the Bill, has not been included. It is the step that people need.
Amendment 80 adds another clause, which is very much about verification and money laundering. Amendment 144 deals with shareholders being able to raise questions in virtual AGMs. It cannot be beyond the wit of women and men to enable that to happen.
Lord Mendelsohn [V]
My Lords, I will briefly speak in support of Amendment 75, which is also in my name, on the Small Business Commissioner. Only in the UK system have we decided to have a Small Business Commissioner to deal with late payments and model it on existing arrangements in other countries. Every other country uses legislation to deal with late payments. However, they have found that the small business administration in America or in Australia, or other types of such agencies, have played a useful role in the insolvency process, building support and confidence for smaller businesses and being a useful vehicle for larger companies and professional services to do a variety of things—from the renegotiation of leases to dealing with supplier contracts, for example. Apart from the measures my noble friend Lord Stevenson described, there are of course other ways in which involving the Small Business Commissioner is a big help in making sure that this legislation works and that it properly protects the interests of smaller operators, ensuring that larger operators and the asymmetry of powers can be adequately addressed and a smoother process can be assured. Enhancing the role of the Small Business Commissioner by adopting this amendment and introducing some sort of formal role or consultative power would be a useful step toward ensuring that this process works smoothly.
Baroness Anelay of St Johns [V]
My Lords, I will speak to Amendment 143, which is in my name. The Bill is of course welcome and gives legal certainty to certain charities about how they can, without any penalty, “disobey” the rules in their own governing document on whether and when to hold AGMs and other meetings and file certain documents. But some charities are excluded from this sensible legal assistance—those established either by Act of Parliament or by Royal Charter. They are mostly long-established and include national museums and leading cultural organisations such as the Royal College of Music and the National Art Collection Fund, as well as some leading universities and colleges. It should also be noted that, even if a charity does not have to hold an AGM during the relevant period, it may none the less be advisable for it to take advantage of the temporary flexibility offered by the Bill to other charities and go ahead with a meeting to consider resolutions which might need to be passed in the next few months—for example, the appointment or re-appointment of board members.
My objective today is to ask the Government to explain why they have excluded certain categories of charities from the flexibilities provided by this Bill. If the Government have decided that the Bill is not the right vehicle for these charities, I would like my noble friend the Minister to explain why. It is important that the Government explain today what other guarantee of certainty they can give to the excluded charities, so that they will not face any disadvantage.
Much earlier this afternoon, in answer to the noble Baroness, Lady Falkner, my noble friend Lord Callanan stated that there had been extensive consultation over a long period about provisions in the Bill. I would be grateful if the Minister said now what discussions she or her officials have had with DCMS and the Charity Commission in deciding what assistance should or should not be provided by legislation to the excluded charities. Did those discussions take place before the pandemic began, or have they taken into account discussions since then with representatives of the excluded charities about the impact of the pandemic on them and how they might be given certainty?
My concern is that there is a group of excepted—excluded—charities which do not have the same benefits as others listed in Schedule 14. I feel that it is unfair to leave them to the vagaries of decisions by the Charity Commission as to whether they can go ahead and break the rules of their own governing document. They are respectable charities; they need to have the respect of being given the flexibility to operate in the same way during this pandemic as charities currently covered by the Bill. I look forward to the Minister’s response.
Baroness Altmann [V]
My Lords, I too will be brief in the interests of time. I echo the wise words of the noble Baroness, Lady Anelay, and I support her Amendment 143, but I particularly want to talk to my own Amendment 144. This amendment deals with an issue whereby the Bill has rightly removed barriers for those companies whose articles do not allow virtual AGMs to be held. It is clearly important to enable such meetings in the current environment, but Schedule 14 has some worrying implications for shareholder capitalism. I ask my noble friend the Minister to consider Amendment 144, and I thank the noble Baroness, Lady Bowles, for her support. The amendment would make a small change in respect of paragraph (b) of Schedule 14 (3)(6), which removes the right of shareholders to ask questions at AGMs and permits them only to vote.
That paragraph would clearly reduce shareholders’ ability to scrutinise, engage with and hold to account a company's management. As ShareAction has pointed out, it would also damage the UK’s reputation for protecting shareholder rights and the interests of both institutional and individual shareholders. My amendment would simply omit paragraph (b), so that ways can be found to allow shareholders to engage in dialogue and question their boards, as is already the case for US and European companies. I would also hope that, after these emergency measures expire, my noble friend might agree that there is a need to develop ways to modernise British AGMs to better reflect the era of modern stakeholder capitalism.
The Deputy Chairman of Committees
I now call the noble Earl, Lord Clancarty. No? I call the noble Lord, Lord Cormack.
Lord Cormack (Con) [V]
My Lords, today’s proceedings have illustrated how impossible it is for a virtual or a hybrid House to hold the Government adequately to account. I ask those who arrange our proceedings to ensure that time is fairly and evenly distributed. We started with no time limits on speeches, and we are now having to gallop through a great many important issues.
I give my total support to what my noble friend Lady Anelay said on her Amendment 143. These charities include some of the most notable in the country, and many of them are connected with heritage and the arts, which is why I was anxious to give my support. It really is crucial, especially when the Bill has not had any real scrutiny in the other place, that adequate time is given to consider the vital points that have been made in this very wide-ranging group of amendments. I would like to go on at much greater length but, in deference to others, I will not. However, I repeat my strong support for my noble friend Lady Anelay.
Lord Palmer of Childs Hill [V]
I will not speak for long, bearing in mind the time constraints. I am concerned by Amendment 75 and the mention of the Small Business Commissioner. I wonder whether, perhaps separate from this debate, the Minister could say what successes the Small Business Commissioner has had. I have made previous speeches in your Lordships’ House on his ineffectiveness.
The amendment before us now sounds sensible but it does not use the normal term “small and medium-sized enterprises”; it mentions “small business” and “larger businesses”. From my professional life, I know that many firms that consider themselves small I would consider large, and that many firms that are large would consider themselves small. The vagueness that this amendment would introduce to the legislation, if it ever got in, would not be useful.
The Small Business Commissioner was really set up to deal with late payments, which of course affect small companies. Here, the amendment is trying to give the Small Business Commissioner a much wider remit, but I have never seen great success in the small remit it has.
While I am on my feet—in a theoretical sense— I want to mention that another Minister speaking from the Front Bench took issue with my comment on HMRC and VAT. She said that VAT was not being given special priority in the Finance Bill 2019-21. I advise her to look at Clause 95. Perhaps the noble Lord the Minister will write to me on this matter.
Baroness Bowles of Berkhamsted [V]
My Lords, this group deals with a range of issues which I broadly support, but I shall keep to those amendments with my name on.
I am not quite sure what my Amendment 73 is doing in this group, but its purpose was to ensure that the interests of SMEs are specifically taken into account when reviewing amendments to legislation made under Clause 18, the Henry VIII clause. Clause 21, governing the time-limited effect of Clause 18 amendments, states that regulations made under Clause 18 must be held under review, and revoked or amended if they are no longer expedient or proportionate. My amendment adds a third option if they cause harm to SMEs, as I fear that SMEs could fall between the two stools of expedience and proportionality.
I signed Amendment 78, concerning the FRC, because its replacement is long overdue and it is hard to understand why this top recommendation from the Kingman report has not yet come about. I know that there has already been one consultation on it because I replied to it over a year ago, so what happened to that and why is there prevarication? There is still so much more about the unsatisfactory past of the FRC that could come out—it is constantly dribbling out. It will taint ARGA if it is perceived as just the FRC by a new name, which is what the delay is doing.
The Deputy Chairman of Committees
I will now try the noble Earl, Lord Clancarty, again. No, that did not work, so we will go to the Minister, the noble Baroness, Lady Bloomfield.
Baroness Bloomfield of Hinton Waldrist
Can I correct for the record something that I said on the previous amendments? The money that will take precedence from HMRC includes VAT held on behalf of customers, as well as national insurance contributions. What it does not include is things such as corporation tax.
I thank noble Lords for their amendments on a range of important issues in this group. I will try to cover them all, as well as the Committee’s questions, as best I can in the time available. I thank the noble Lord, Lord Stevenson, for highlighting the important matter of directors’ duties under the Companies Act. These duties continue to apply during the period in which personal liability for wrongful trading is suspended. The purpose of this provision is to remove the deterrent of personal liability at the point at which the directors of the company are deciding whether it should continue to trade at a time of great economic uncertainty. At this time, it is important that directors can be certain that their decision to trade on will not result in personal liability.
I reassure the noble Lord that those directors’ duties he refers to in his amendment will continue to operate, including the duty to protect the interests of creditors. I add that directors have legal responsibilities under wider company law; for example, to exercise independent judgment with reasonable care, skill and diligence. These duties will remain in place, as will measures in insolvency law to penalise directors who abuse their position. Therefore, directors will still face the threat of fraudulent trading, coupled with director disqualification from a compensation regime where their conduct merits it.
On Amendment 67, regarding the general power to amend insolvency law, I thank the noble Baroness, Lady Bowles, for raising the matter of ensuring that temporary amendments made using the general powers in Clauses 18 and 26 remain relevant and necessary while in effect and will be removed when they are not needed. Full consideration must be given to the impact of temporary amendments on anybody likely to be affected by them, not just small or medium-sized companies and unsecured creditors, and this consideration must be given before the powers are used. The amendments must then be proportionate to the purpose of making them, which must be one of the purposes set out in Clauses 19 and 27. This might be reducing the number of entities having to use corporate insolvency proceedings or mitigating the impact of Covid-19 on those processes. Further, the powers in Clauses 18 and 26 may not be used to create a provision to impose or increase a fee.
A temporary amendment which causes financial harm to small and medium-sized companies and unsecured creditors is unlikely to meet one of the purposes for which the powers in Clauses 18 and 26 may be used. Temporary amendments must remain under review. In the unfortunate circumstances where an amendment caused unforeseen and unintended harm, this would be addressed during the ongoing review process.
A number of noble Lords mentioned the Small Business Commissioner in relation to Amendment 75. The noble Lords, Lord Stevenson and Lord Mendelsohn, are right to highlight the office of the commissioner as a force for good in resolving payment issues for the smallest businesses which, as we know, are least able to weather the storm of cash flow issues. The Government are completely focused on their manifesto commitment to clamp down on late payment to small businesses. The SBC’s intervention in late-payment disputes has recovered over £7 million in late or unpaid invoices for small businesses since it was created, and its work has been especially important in light of the cash flow issues all sizes of businesses have been facing in the current Covid situation. I hope this also goes some way to addressing the concerns of the noble Lord, Lord Palmer.
We have already pledged to consult on extending the powers of the SBC and we will bring forward that consultation as soon as we are able. The consultation period and engagement with interested parties will bring forward ideas for the extension of scope and powers and will be given consideration. I hope that noble Lords will understand our desire to consult carefully before making important decisions such as this one.
I turn to Amendment 48 on the Financial Reporting Council, tabled by the noble Lord, Lord Stevenson. The Government are committed to strengthening the UK’s corporate governance and audit regime. We are drawing up plans to replace the Financial Reporting Council with a new regulator, as part of a wider programme of audit reform. This programme covers the recommendations of three independent reviews by Sir John Kingman, Sir Donald Brydon and the Competition and Markets Authority. The Government are therefore already considering many, if not all, the specific issues highlighted by this amendment. Our intention is to set out our proposals in the coming months, seeking views on them where the Government have not already done so. The noble Lord will be aware that this Bill takes forward some of the corporate governance reforms related to his amendment, such as a freestanding moratorium and a new restructuring tool.
We were asked why we were not reforming Companies House. The consultation on reform received a significant number of responses. An official government response will be published in due course. We are considering a broad package of reforms to Companies House, to ensure that it is fit for the future and continues to contribute to the UK’s business environment. The proposals amount to the most significant reform of the UK’s company registration framework since the companies register was first introduced in 1844 and it is important to take the time to get it right.
Amendment 80, in the name of the noble Baroness, Lady Bowles, covers the role of the Registrar of Companies. The Government agree that there is a case for introducing further checks to verify the identities of individuals setting up, managing or controlling corporate entities. Last year’s consultation proposed that those with a key role in companies should have their identity verified, and that Companies House should have greater powers to query and seek corroboration on information before it is entered on the register and to remove inaccurate information.
I turn to Amendment 143 in the name of my noble friend Lady Anelay. I will try to allay her concerns, and those of my noble friend Lord Cormack. There have been extensive discussions with DCMS and the Charity Commission, which have been involved in all the measures in the Bill. My noble friend will be aware that a small number of charities is incorporated and regulated by an Act of Parliament or by royal charter. In the limited time available it was not considered proportionate to extend the measures in Schedule 14 to the Bill to this small group of charities. Extending the relevant provisions to these groups of charities in a way that would be effective and avoid unintended consequences would be complex.
In cases where charities are not covered by the Bill’s flexibility on AGMs, the Charity Commission has indicated in its published guidance that it will take a pragmatic and proportionate approach where members’ meetings need to be postponed or held virtually in order to comply with social distancing, even where this may appear to be contrary to the rules of the charity’s governing document.
I am grateful to my noble friend Lady Altmann and the noble Baroness, Lady Bowles, for tabling an amendment on shareholder representation that draws attention to the flexibilities offered regarding meetings of companies and other qualifying bodies. Given that, at present, public health measures preclude mass gatherings, it is right that the Government should temporarily suspend certain members’ rights, the most fundamental being the right to attend a meeting in person. The measures on AGMs and other meetings enable them to be held in a way that is consistent with the coronavirus regulations and the Government guidelines on social distancing. The new measures will not prevent shareholders exercising their right to vote. They will still have the ability to vote by proxy where available.
To minimise the impact of not being able to attend, we expect companies to engage with shareholders ahead of and following meetings, including responding to shareholders’ questions that are sent in by electronic and other means. We have issued guidance to industry that bodies which seek to make use of the range of meeting flexibilities that the Bill provides should explore all alternative avenues to ensure that their members are able to participate in AGMs and other meetings to as great an extent as is reasonably practical.
I turn now to the final point made by the noble Baroness, Lady Bowles, on the Financial Reporting Council UK audit reform in response to the review by Sir John Kingman of the FRC, Sir Donald Brydon’s review of audit and the Competition and Markets Authority’s study of competition in the statutory audit market. The Government have committed to bringing forward proposals for reform, including legislation to establish a new regulator in place of the FRC.
I would like to thank noble Lords for their insightful contributions. I have sought to offer reassurances regarding each of the issues raised, albeit in brevity given the range of issues in this group. I hope that the noble Lord will feel able to withdraw his amendment.
Lord Stevenson of Balmacara [V]
My Lords, I thank all speakers in this short debate. It has been very wide-ranging and we have ended up with what almost amounts to a raft of future changes that we would all like to see in the legislation relating to corporate governance and related matters. I look forward to hearing about progress on that in the near future.
I have one point to make which does not need a response from the noble Baroness at this stage. The noble Baroness, Lady Anelay of St Johns, rightly raised the question of charitable companies. We have been given a response to the effect that it is not felt appropriate to deal with the very small number which fall into the main category. However, I put it to the Minister that these days most charities have trading companies and all of those will be subject to the same rules and regulations that we have been talking about prior to this. Therefore, I assume that any charity which is set up—whether by royal charter or a company set up by Parliament or indeed by any other way in which charities are formed—and has a trading company would be caught by the main tenet of these things. I am afraid that insolvency is quite likely, given the very bad impact of the coronavirus on charities. Tourism numbers are down, and we are likely to see problems and I hope that that will be covered. Perhaps the Minister could drop me a note on this point.
In the same vein, I ask the Minister to confirm that companies which are set up through credit union legislation could have similar issues, so their particular circumstances need to be looked at, as are those companies set up on a social enterprise model for which there is not the same legal framework. However, the same intention lies behind them and they should be able to trade and operate in a way that is effective for their members. I beg leave to withdraw the amendment.
Baroness Barker
Member’s explanatory statement
This amendment would extend the relevant period for the suspension of liability for wrongful trading in Great Britain.
Baroness Barker
My Lords, following on neatly from the noble Lord, Lord Stevenson of Balmacara, those noble Lords who took part in the Second Reading debate will know that my experience is in the field of charitable companies and their subsidiary trading companies, CICs, friendly societies and so on. This amendment would not apply in particular to any one set of companies, but it acknowledges that there are different types of companies and that their incomes are derived in different ways. Given that, the impact of the period of wrongful trading or the relaxation of the wrongful trading regulations will have a different effect on some companies.
I do not want to rehearse the arguments I made at Second Reading, but we know that in the past three months, charities have lost £4 billion-worth of income and a lot of them are staring insolvency in the face. However, for them, as for commercial companies, all may well change within the next four weeks. We know, for example, that in fields such as entertainment, if a change is made to the social distancing rule—the physical distancing rule, as it should be called—that may have a direct impact on the viability of some companies.
Lord Hodgson of Astley Abbotts
My Lords, I have Amendment 129 in this group. It seeks to equalise the different levels of protection afforded to firms in trouble under this legislation. It has been brought to my attention by a firm of solicitors that specialises in insolvency. The two critical dates in the legislation are 27 April, after which general protection is available; and 1 March, just under two months earlier, after which protection is afforded, but only if a statutory demand for payment has been made.
However, a statutory demand is not the only way that a company can be caused to fail. It is possible to go for a default judgment in a county court or a liability order in the magistrates’ court and proceed directly to a winding-up. Firms that are subject to either of these other two procedures do not benefit from protection from 1 March, but from 27 April only.
Firms are able to object and to fight these proceedings but, from 23 March, the country was in lockdown. Understandably, courts have found it more difficult to inform defendants about cases brought against them and, in many cases, smaller companies—where the proprietor is running the business almost on their own —may have been involved in self-isolation. They are therefore unable to access proper legal advice to protect their position. My amendment seeks merely to extend protection for these cases, particularly those affecting small companies, from 27 April to 23 March—the date on which lockdown began and the inequality of legal arms may have commenced.
Baroness Bowles of Berkhamsted [V]
My Lords, I can be brief because my amendment in this group contains a separated half of the GB-Northern Ireland pair of amendments relating to small businesses that I spoke about in the previous group, so I do not need to explain those again, and in the interests of time I will forgo speaking on anything else.
Lord Wallace of Tankerness [V]
My Lords, I will seek to be brief. The point I will make relates to retrospection, which Amendment 129 from the noble Lord, Lord Hodgson of Astley Abbotts, perhaps illuminates; he is trying to make some of the provisions even more retrospective. I will not work through all the detail; suffice it to say that in Schedule 10 we are asked to enact a provision that would retrospectively void a court order that had been legally pursued and granted. In the words of the Government’s Explanatory Notes, this
“may lead to the petitioner becoming liable for the cost of doing so.”
I do not doubt that there are important business and commercial reasons underpinning these provisions. I ask simply that the Committee proceeds with the utmost caution when making retrospective provision. I quote from the Constitution Committee’s seventh report:
“We recognise that the COVID-19 pandemic presents companies with considerable challenges and that the Government is rightly seeking to protect businesses and the economy as a whole … However, measures with retrospective effect are exceptional and undesirable in principle, requiring the strongest possible justification. We do not think the Government has yet made the case for them in this Bill.”
I simply invite the Minister, when he comes to reply, to try to make a justification and, if he is unable to do so in the time remaining in these foreshortened proceedings today, to undertake to make a response to the Constitution Committee’s report before the House meets for Report.
Baroness Bloomfield of Hinton Waldrist
My Lords, if I might take just a couple of seconds of your Lordships’ time, we have 10 minutes left to finish this group. I encourage people to make their comments as short as possible, so that we at least finish this group.
Lord Howarth of Newport [V]
My Lords, I will follow the noble and learned Lord, Lord Wallace of Tankerness, and make my comments in reference to Amendment 129 in the name of the noble Lord, Lord Hodgson of Astley Abbotts. I begin by commending him on the very strong statement of principle he made in the debate on the first group about the constitutional impropriety of too many aspects of this Bill.
His amendment dealing with the “relevant period” provides us the opportunity to touch on the constitutional principle of retrospectivity. The Bill’s provisions are backdated, altering the law on winding-up petitions as it stood after 1 March in some aspects and after 27 April in others. I do not in any way dissent from the intention of the noble Lord, Lord Hodgson, to bring in a further measure to protect vulnerable businesses. None the less, we ought to recognise that it is generally held that retrospective legislation undermines the rule of law.
In this Bill, a legal right that people relied on is ex post facto wiped out, to the detriment of persons who relied on it. Provisions in Schedule 10 operate retrospectively to invalidate winding-up petitions made by creditors, albeit creditors exercising a statutory right. They could even be deprived of the benefit of a favourable court judgment previously made, as the noble and learned Lord just said. It allows the court to undo the effect of winding-up petitions and even to require petitioners to be liable for costs. This is a remarkable provision and appears to be incompatible with the rule of law.
Retrospective legislation should be very rare indeed. It is constitutionally objectionable in principle, so, like the noble and learned Lord, Lord Wallace, I ask: how does the Minister justify it? If he considers it necessary to deal with abuses by creditors, how widespread are these abuses? How many instances have been reported? Why is a change in the law needed to deal with them, and why a retrospective change in the law?
Lord Stevenson of Balmacara [V]
My Lords, I have nothing to add; the arguments make themselves. I look forward to hearing from the Minister.
Earl Howe
My Lords, I am most grateful to noble Lords for these amendments, which seek to extend the period of time that the range of temporary measures contained in the Bill will continue to operate. The temporary measures contained in the Bill are all necessary to ensure that otherwise viable companies are given the space to recover, if that is possible. I entirely understand noble Lords’ desire to ensure that the measures continue for as long as they are needed. As I am sure they appreciate, the Bill contains provisions enabling these temporary measures to be extended, and I can reassure them that the Government have every intention of making use of this provision if the protections are needed beyond their present expiry date.
The temporary measures all have significant impacts on the normal working of various parts of insolvency legislation and the business community. The point that needs to be made here, though, is that the term of extension for one measure may not be desirable, or needed, for another. We therefore think it is right that any consideration of an extension, and for how long, should be done on an individual basis rather than in the round, taking into account all the circumstances and potential impacts.
My noble friend Lord Hodgson’s amendment is slightly different from the other amendments in this group, in that it would extend backwards the period to which restrictions on winding-up petitions and orders apply, to include circumstances where petitions were filed after 23 March 2020, when lockdown began. As currently drafted, the restriction on winding-up petitions applies retrospectively from when the Government announced their intention to legislate. It seeks to avoid unfairness by ensuring that the restriction on winding-up petitions applies only in cases where the person presenting the petition would have known of the Government’s intention to legislate in this area. I hope my noble friend will agree, on reflection, that it would not be appropriate to place such a requirement on anyone before they could have known about it. That is why we have chosen to apply the provisions in respect of windings up from 27 April 2020—the next working day following the Government’s announcement of the change in policy.
I will write to the noble and learned Lord, Lord Wallace of Tankerness, and the noble Lord, Lord Howarth, in answer to their questions on retrospection, but for the reasons I have set out, I am not able to accept these amendments. I therefore hope that the noble Baroness, Lady Barker, will feel able to withdraw her Amendment 47 and that, in due course, the other amendments in the group will not be moved.
Baroness Barker
My Lords, in view of the hour I will simply say that I am not surprised by the noble Earl’s answer. There is something to be said about the winding-up provision specifically running longer than 30 June, but at this hour I will withdraw my amendment.
Lord Callanan
Member’s explanatory statement
This amendment changes the definition of the “relevant period” so that the term is defined by reference to the coming into force of the section rather than by reference to the coming into force of the Act as a whole.
Lord Callanan
Member’s explanatory statement
This amendment changes the definition of the “relevant period” so that the term is defined by reference to the coming into force of the section rather than by reference to the coming into force of the Act as a whole.
Lord Vaux of Harrowden
“(7A) This section does not apply in relation to a contract for the supply of goods or services to a company where the supplier is not in its first financial year at the relevant time and meets at least two of the following conditions in the most recent financial year--Condition 1: the supplier’s turnover was not more than £5.1 million;Condition 2: the supplier’s balance sheet total was not more than £2.5 million;Condition 3: the number of the supplier’s employees was not more than 25.(7B) For the purposes of Condition 1 in subsection (7A), if the supplier’s most recent financial year was not 12 months, the maximum figure for turnover must be proportionately adjusted.(7C) For the purposes of Condition 2 in subsection (7A), the supplier’s balance sheet total means the aggregate of the amounts shown as assets in the supplier’s balance sheet.(7D) For the purposes of Condition 3 in subsection (7A), the number of employees is the number of employees at the most recent financial year end.(7E) In subsections (7A) to (7D), the supplier’s “most recent financial year” is the financial year of the supplier which, at the relevant time, has ended most recently.(7F) This section does not apply in relation to a contract for the supply of goods or services to a company where the supplier is in its first financial year at the relevant time, if the supplier’s average turnover for each complete month in the supplier’s first financial year is not more than £425,000. (7G) For the purpose of subsections (7A) and (7F) a supplier may be a company, a limited liability partnership, any other association or body of persons, whether or not incorporated, or an individual carrying on a trade or business.”Member’s explanatory statement
This amendment introduces a permanent exemption to the termination of supply contracts rules for the smallest companies (set at 50% of the size of small companies that are subject to a temporary exemption in Clause 13).
Lord Vaux of Harrowden [V]
My Lords, I believe that I have a minute and a half and we have 18 amendments to get through, which is not terribly satisfactory. My Amendment 51 seeks to introduce a permanent exemption to the termination of supply clauses for very small businesses. I am very concerned that these clauses could be particularly difficult and burdensome for small businesses. The Government recognise this with a temporary exemption, but the clauses are permanent. Having to supply with uncertainty of payment, possibly on top of overdue debts prior to the moratorium, will be disproportionate at any time, pandemic or no pandemic.
Given the time, I will not go through more detailed arguments than that, other than to say, in response to the point that the Government made in one of the previous meetings we had that making it permanent for all small businesses would render the supply protections less useful, that I have therefore drafted the amendment so that it applies only to much smaller companies that are 50% of the size of the ones the temporary exemption applies to. That is arbitrary and I am very happy to discuss it further.
In addition, my Amendment 54 is a very small technical amendment that would simply reduce the tests that a small company that is less than a year old has to apply to meet the small company exemption. It would have to apply only a turnover test. It is a little, technical thing, but it would make life easier for small companies. I beg to move.
Lord Hendy [V]
Could I ask the Deputy Chairman of Committees how long we have?
The Deputy Chairman of Committees
If the Government Chief Whip would like to make a short statement, he can at this point.
Lord Ashton of Hyde
We will finish this group and then we will have to do the remaining group as first business tomorrow.
Lord Hendy [V]
Thank you. Amendments 107 to 116 seek to add a third condition to the two proposed conditions for the court to approve a compromise or arrangement.
In Amendments 109 to 111, we seek to require that companies pay all outstanding payments of workers’ remuneration et cetera. This is a reflection of the amendments moved in group one, and therefore I will not develop the arguments again.
Amendment 112 would ensure that the company’s obligations to its pension scheme have absolute priority. Again, your Lordships heard the arguments for that in the debate on the first group of amendments, with contributions from my noble friends Lady Drake and Lady Warwick, the noble Baronesses, Lady Bowles and Lady Altmann, and the noble Lord, Lord Balfe.
Amendment 113 is a repetition of the condition that we proposed in the debate on the fourth group of amendments, which is that 30% of the sale of any assets should be used for the satisfaction of unsecured creditors. I will not repeat those arguments.
Amendments 114 and 115 are, in our submission, important. They are intended to redress the striking deficiency in the Bill of failing to include any mechanism of industrial democracy by which workers may have a say in the vital decisions contained in the Bill that are likely to have a profound effect on their lives.
Amendment 114 proposes workers on boards, just as in most of the rest of Europe. Such a proposal has been the subject of discussion since the 19th century and particularly since the 1977 Bullock report. It was proposed by Mrs May when she was Prime Minister. This is a golden opportunity to put it into effect as a condition. Workers being on boards would make the interests of all stakeholders being properly taken into account much more likely.
Amendment 115 proposes an alternative form of industrial democracy: collective bargaining. Our amendment recognises that there are no recognised unions in many workplaces. We therefore deploy the mechanism for workplace representatives to be elected, which is found in the legislation for collective redundancy consultation. The statutory requirement to bargain collectively has a long history, going back to the Trade Boards Act 1909 and, in a different and more limited form, Schedule A1 to the 1992 trade union Act. It is normal in Europe. The Government would also have the satisfaction of complying with their obligations in international law.
Amendment 116 is intended to discourage restructures intended to raise cash simply to pay dividends, buy back shares or pay the directors excessively.
Amendment 117 is intended to extend the benefits of the previous measures to the broader legal category of workers as well as that of employees.
I am disappointed that, because of the time, I cannot develop further any of the merits of these amendments at this point.
Baroness Altmann [V]
My Lords, I will not detain the Committee for very long. I add my support for the protection of workers’ rights that would be achieved by the amendments in this group.
Lord Hain [V]
Current UK company law prioritises the interests of company shareholders over those of anyone else with an interest in the company, such as employees, suppliers and subcontractors or local communities, but everyone involved in a firm in financial distress has something at stake, not just those in the boardroom or whose names appear on the company’s share register. This includes each and every member of the workforce. Whatever happens, they deserve to have their tax, national insurance, redundancy and pension rights and responsibilities acknowledged and protected.
Amendment 112 recognises that pensions are really postponed pay packets and seeks to protect workers’ deferred earnings. Workers who may have invested much of their working lives in the company and thereby have accumulated pension rights vital to the future of their family must not face losing some or all of those rights while shareholders and secured or unsecured creditors help themselves to whatever of value remains in a company that is facing failure.
Amendment 115 requires collective agreements to be reached between firms seeking a compromise or a reconstruction arrangement and representatives of employees affected by such a compromise or arrangement.
Amendment 116 makes it a condition for companies to receive state support under the Bill that they give priority to rebuilding their finances, ruling out for three years dividend payments, share buybacks or payments to any director of more than 10 times the rate received by the company’s lowest-paid full-time equivalent employees.
Amendment 111 provides for any compromise or reconstruction arrangement for a firm in financial difficulty to provide immediate redress for past breaches of the sex equality clause under Section 66 of the Equality Act 2010 or of the sex equality rule under Section 67, and for the possibility of future such breaches to be eliminated.
Amendments 114 and 115 on elected workers on boards and requiring agreements with trade unions seek to take a leaf out of Germany’s book by giving a voice to workers via elected seats on company boards. In Germany, about 90% of private sector workplaces with more than 500 employees elected works councils in 2011. This system of making co-operation at work between unions and employers a matter of routine has helped to deliver high living standards, unparalleled export success, strong manufacturing, world-class training and skills, and social cohesion.
So that we can decide what to do on Report about these issues, I appeal to the Minister to give strong and unequivocal guarantees on the issues we have raised in Amendments 107 to 117.
Finally, my Amendments 120, 121 and 122 on restructuring propose lowering these thresholds from the proposed three-quarters to two-thirds to make it quicker and easier for distressed companies to apply to the court for the approval of their restructuring plans. This would provide greater certainty for all stakeholders in those businesses, including employees. It would reduce the cost to businesses of restructuring negotiations, helping return more value to stakeholders, and would lead to quicker resolutions of corporate restructurings, helping to protect jobs. While the interests of minority creditors and shareholders are important, it cannot be right that their interests can prevail over those of a majority, exposing all to greater likelihood of the business subsequently falling into administration or liquidation.
I therefore hope that the Minister will accept these amendments, or, if he has technical or drafting quibbles, at least come back on Report to amend the Bill as I intend with these amendments.
Lord Monks [V]
I add my support to the contributions made by the three previous speakers on this group. It seems that there is one big gap in the Bill, which is to take account of the interests of the working people, for all the reasons that have been explained by other speakers, which are so essential to the future of the firm and of the country. This is a gaping gap, and I hope very much that the Government will address it. I am told that there are plans in government for perhaps another Bill at some time in the future, where the points that we are raising might be addressed. However, I want a clearer indication from the Government on whether they indeed intend to bring forward some proposals additional to the ones in the Bill at the moment, to improve the position of working people. The Prime Minister said that he wanted to embrace the working people of this country. The Bill and the amendments we have tabled to it are an opportunity to do that. I ask the Government to embrace the amendments and follow what the Prime Minister is apparently talking about.
Baroness Jones of Moulsecoomb (GP) [V]
My Lords, in view of the time constraints, I will limit my comments to just two issues. The first is that Committee has been limited to an afternoon, which I think is absolutely appalling. It is all in line with the way the Government are reducing Parliament to a series of nods that they think they can control. I say to the noble Lord, Lord Monks, that there are, in fact, two huge gaps in the Bill. The first is the environment, which I spoke about at Second Reading. There is an absence of any thought of protecting our environment, when the Bill could play quite a major role in our transition to a net-zero carbon economy.
As the noble Lord, Lord Monks, pointed out, the Bill has another major flaw, which is the lack of protection for workers’ interests in this special insolvency scheme. Without these provisions, the Government will just have to hope that already wealthy people will not take advantage of this emergency scheme, but we all know that predatory capitalists use whatever legal loopholes they can to trash our planet, cheat our workers and strip the assets of companies to extract as much cash as possible. I think we will be able to point to today’s Hansard in six months’ time, when the inevitable happens and people are driven out of their livelihoods while bosses and shareholders are laughing all the way to the bank. I look forward to seeing the Government’s new amendments next week and I hope that Report will perhaps show that this Government have a heart.
Baroness Bryan of Partick (Lab) [V]
My Lords, I have added my name to Amendments 110, 112 and 114, but I shall speak only to Amendment 114, which is a recognition that workers are truly a company’s greatest asset. But how many company mission statements have used those words but gone on to treat their workers as expendable? If a restructuring plan is to work, it will need the benefit of workers at boardroom level. If the company is ready for insolvency, the ability of the current board to turn things around must be open to question. Elected workers’ representatives are uniquely placed to identify improvements and ways to increase productivity, while at the same time assuring workers that their interests will be safeguarded. So, along with the other amendments, I hope that the Minister will reflect on this one in particular and bring some alternative to the next stage of the Bill.
Lord Fox
My Lords, I associate myself with some of the comments of the noble Lord, Lord Hain, around works councils. In my past life, working with works councils, particularly in the Netherlands and in Germany, I found them to be a positive, long-term force within companies. An earlier speaker mentioned that in private sector businesses, unions have low representation, which is why works councils should be important in this country, but on departing the European Union I understand that the Government are going to reduce or negate the need for companies to have works councils, which is something to be regretted. What is also to be regretted is that we cannot have a proper debate on these amendments, which means that Report will inevitably have to go on longer.
Baroness Bowles of Berkhamsted [V]
My Lords, I support the two amendments in the name of the noble Lord, Lord Vaux, that include changes to the definitions of the smallest businesses and a new definition to help first-year businesses. These both seem sensible. We have had a lot of instances in the various coronavirus reliefs where help is not extended to everywhere that might reasonably have been covered; therefore, examination of definitions in the light of that and other experiences seems worth while.
Lord Lennie [V]
I thank my noble friends Lord Hendy, Lord Hain and Lord Monks for bringing forward their amendments on this part of the Bill. Given the constraints on time, I ask the Minister whether the Government intend to bring forward further legislation on this matter. Does this have to be dealt with now, or can it wait for further legislation?
Baroness Bloomfield of Hinton Waldrist
My Lords, these are important amendments, which deserve a proper response. The Government agree with much of the sentiment behind some of the amendments, and so I hope noble Lords will forgive me if I commit to write to them with a proper response tomorrow. Clearly, the Government are not able to accept the amendment, and I hope that the noble Lord will therefore withdraw it.
Lord Vaux of Harrowden [V]
My Lords, given the time, I will not try to sum up the brief debate we have had on these 18 amendments, including one dealing with small companies and one relating to employment situations. I look forward to the letter from the noble Baroness and ask that she has another look at how we might mitigate the impacts on the very smallest of businesses, otherwise we may have to revisit the matter on Report. That said, I beg leave to withdraw the amendment.
Corporate Insolvency and Governance Bill
Wednesday 17th June 2020
(3 years, 10 months ago)
Lords ChamberRead Full debate Corporate Insolvency and Governance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 114(a) Amendments for Report - (17 Jun 2020)
The Deputy Chairman of Committees (Lord Alderdice) (LD)
My Lords, a limited number of Members are here in the Chamber, respecting social distancing, and if the capacity of the Chamber is exceeded, I will immediately adjourn the House. Other Members will participate remotely, but all Members will be treated equally, wherever they are. For Members participating remotely, microphones will unmute shortly before they are to speak—please accept any on-screen prompt to unmute. Microphones will be muted again after each speech. I ask noble Lords to be patient if there are any short delays as we switch between physical and remote participants. I remind the House that our normal courtesies in debate still very much apply in this new hybrid way of working.
I shall begin by setting out how these proceedings will work. A participants’ list for today’s proceedings has been published and is in my brief, which Members should have received. I will call Members to speak in the order listed. Members’ microphones will be muted by the broadcasters except when I call a Member to speak. Interventions during speeches or before the noble Lord sits down are not permitted, and uncalled speakers will not be heard.
During the debate, I will invite Members, including Members in the Chamber, to email the clerk if they wish to speak after the Minister. I will call Members to speak in order of request and will call the Minister to reply each time. Debate will take place on the lead amendment only. The groupings are binding and it will not be possible to de-group an amendment for separate debate. A Member intending to press an amendment already debated to a Division should give notice in the debate. Leave should be given to withdraw amendments. When putting the Question, I will collect voices in the Chamber only. If a Member taking part remotely intends to trigger a Division, they should make this clear when speaking on the group.
Amendment 57
“Review of pre-pack transactions
In Schedule B1 to the Insolvency Act 1986, after paragraph 74 insert—“Review of pre-pack transactions“74A (1) The assets of a company may not be transferred under the terms of a pre-pack transaction unless the proposed purchaser has obtained an opinion in writing from a member of the Pre-Pack Pool that the transaction is not unreasonable.(2) In this paragraph, a “pre-pack transaction” means a transaction which is negotiated before a company enters administration, and under which all or a substantial part of the company’s assets are sold to an associate on or shortly after the appointment of an administrator.(3) For the purposes of sub-paragraph (2), “associate” has the meaning given in section 435 of the Insolvency Act 1986.””Member’s explanatory statement
This amendment requires a positive opinion to be obtained from a member of the Pre-Pack Pool before a company enters into a pre-pack transaction. The Pre-Pack Pool is an independent body of experienced business people set up in response to the recommendations of Teresa Graham’s report.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I thank the Minister for rearranging his diary to enable us to complete Committee stage so quickly, the Whips Office for similarly reorganising things so that we can get on with it and, last but not least, the staff of the House for the work they have undertaken, particularly since we kept them here rather later than should have been the case yesterday evening. I am very grateful to them all, particularly my noble friend the Minister, who sat patiently and courteously through a very long and quite testing time yesterday.
I ask my noble friend the Minister’s help in just one thing, which concerns my blood pressure: could he possibly ask his Bill team, when they prepare his speaking notes, not to say, “The Bill is needed because of the pandemic”? The Bill is not needed because of the pandemic. Half the Bill is needed because of the pandemic, and if we were dealing only with that half, we would have been done and dusted and home in time for tea yesterday. As we unpicked and unpacked the Bill yesterday afternoon, we saw how much consideration still needed to be given to the bit of the Bill that has nothing to do with the pandemic. If he could just make that change to his speaking notes, it would do wonders for my blood pressure and, I suspect, for that of many other Members of your Lordships’ House.
Amendment 57 is designed to remedy a gap in the oversight and regulation of pre-packs. I am extremely grateful to the noble Baroness, Lady Bowles, for her support on this amendment. I know that my noble friend Lady Neville-Rolfe, whom we will hear from later, probed in a similar way with Amendment 60, which we touched on yesterday afternoon.
During that debate, my noble friend the Minister said that pre-packs were a valuable tool in the insolvency toolkit. He is right that they are valuable but they are open to abuse, which is why I pressed for the House to have a chance to debate pre-packs in a separate group of amendments. First, the treatment and regulation of pre-packs is a loose end in insolvency law and practice. It has been so for 20 years; indeed, it has been a very loose end for the past six years. Secondly, at the margin, if pre-packs continue to grow unregulated, it will undermine the use of moratoriums, which are a much more carefully controlled and regulated way of dealing with company insolvency. Why go through all that if you can go to a pre-pack and therefore, in that sense, undermine the purposes of this Bill?
For those who have come late to the party, I have a few sentences on how pre-packs work, using an example of how the position can be abused. Directors decide that a company is no longer able to trade solvently and will shortly become insolvent. The probable reason is because the company has taken on a lot of debt from previous bad decisions. There are too many creditors and the bank is owed a great deal of money. However, within the company, there is an operational piece that the directors think can be salvaged, so they decide that they will make an offer for that operational piece, without the debts. They approach an administrator and say, “This is what we’d like to do.” They make a nominal offer—maybe only £1 or a similarly trivial sum.
The administrator then takes it on. He or she must decide that this is a fair offer, so it is usually advertised in the paper—usually on a Monday in the Financial Times. If noble Lords look at the Financial Times on a Monday, they will see businesses for sale; those are mostly pre-pack transactions. If no competing offer has been made by the Thursday, the administrator has tested the market and this is therefore the best available offer. The pre-pack can then be completed and the business rises like a phoenix from the ashes of the old, often being run by the same people who got it into trouble in the first place—but, of course, without all the creditors, who have been sloughed off along the way.
As a concept, pre-packs have considerable political appeal. Governments, local Members of Parliament and councillors can trumpet the fact that their actions have saved, say, 200 jobs. However, no one counts the jobs lost or the financial damage done to suppliers, to other firms locally or, indeed, to the Pension Protection Fund, whose position and role was carefully debated yesterday afternoon in relation to moratoriums. Indeed, the Minister kindly sent us an email this morning indicating that the Pension Protection Fund will have a particular place in moratoriums. So what we have is a superficially attractive mechanism but one that, in many cases, because of counterfactual information that you cannot gather, causes more harm than good.
For a number of years, other Members of your Lordships’ House and I pressed Governments of all political persuasions not to be seduced by the attractions of unregulated pre-packs. To their credit, the coalition Government under Vince Cable recognised the problems and set up a review, which was carried out by Teresa Graham and backed by research from the University of Wolverhampton. Six years ago, her 2014 report was accepted by the Government.
Among the report’s recommendations was the establishment of what is known as Pre-Pack Pool Ltd, a company with access to a pool of experienced businessmen who could give a view on whether a proposed pre-pack was fair. They could reach one of only three conclusions: that a proposed transaction was reasonable; that it would be reasonable if changes were made; or that it was unreasonable. The pre-pack pool was established and remains self-funded through charging £800 for each opinion it gives. However—this is the critical weakness in the edifice—reference to it was optional. The results have therefore been entirely predictable. Who wants to pay £800 if they do not have to? The more ruthless and one-sided your proposed pre-pack is, the less likely it is that you will want to refer it to the pool. This device therefore rewards the good guys and does not catch the bad ones.
Now the pre-pack pool is on the edge of collapse. It had only 10 referrals this year, according to an article in the Times. If it collapses, the last vestiges of independent third-party regulation of pre-packs will disappear. Amendment 57 seeks to remedy this problem by making it compulsory to obtain an opinion from the pre-pack pool that a proposed pre-pack is not unreasonable. As my noble friend Lady Neville-Rolfe pointed out in her remarks yesterday, the Government had the power to make referrals mandatory under the Small Business, Enterprise and Employment Act 2015 but that power has now lapsed. I imagine that she will wish to use her Amendment 60 to review that decision and see what else can be done to reinstate that power.
Finally, I referred in my opening remarks to the possible damage to the flagship change in this Bill: the moratorium. No one—but no one—will prefer to undertake a highly regulated mortarium if they can get away with a virtually unregulated pre-pack.
The potential abuses of pre-packs have long been identified. They were reported on by an inquiry set up by the Government and solutions from that inquiry were accepted by the Government six years ago, yet still nothing has been done. By contrast, we are now rushing through a series of entirely new, untested and potentially controversial changes to our insolvency laws while leaving this loophole unblocked. My amendment closes the loophole and provides for proper regulation in this area.
My noble friend the Minister has an open goal. I hope that he will put the ball in the back of the net. If not—somehow I suspect that he will not—will he tell the House whether the Government are prepared to see the pre-pack pool collapse? No ifs, no buts; if the Government are to bring forward legislation at some point in the future, as is the hallowed phrase, what will we do about the pool in the meantime? I urge him to give a yes or no answer so that we can have some confidence in the way this matter is being tackled through the department’s policies. I beg to move.
The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)
My Lords, we are aware of a technical problem meaning that those Members who are joining us remotely can hear us but not see us. We are working vigorously to bring about a resolution.
Lord Vaux of Harrowden (CB) [V]
My Lords, I metaphorically rise to support Amendment 57 in the name of the noble Lord, Lord Hodgson of Astley Abbotts, and to speak to my very similar Amendment 61. Both relate to pre-packs.
The Minister said yesterday that pre-packs are
“a useful tool that allows businesses and jobs to be saved.”—[Official Report, 16/6/20; col. 2092.]
I do not think that anyone disagrees with that. Equally, few disagree that pre-pack deals with related parties involve clear conflicts of interest and raise serious transparency concerns—speaking of which, I can now see noble Lords, which is a great benefit. Indeed, at Second Reading the Minister directly recognised these concerns.
The 2014 Graham report, as mentioned by the noble Lord, Lord Hodgson, very clearly set out its findings that related party pre-packs often involve limited, if any, marketing and on average achieve worse outcomes for creditors. There is truth in the perception of creditors being dumped while directors sail on unharmed with their phoenix company.
The Pre Pack Pool was created in 2015 to introduce an element of independent review into connected party pre-packs. The hope was that this could be a voluntary process, but, sadly, this has not worked; only around 10% of pre-packs have been referred. I am afraid this confirms my slightly cynical view of how the insolvency industry works in practice. The Government had the power to fix this, as we have heard, under the Small Business, Enterprise and Employment Act 2015, but, as the noble Baroness, Lady Neville-Rolfe, pointed out, this expired two or three weeks ago.
I was initially tempted by her approach, as set out in Amendment 60—which, incidentally, should have been in this group—simply to reinstate the power to regulate. However, the Government did not use that power for five years, so I have limited confidence that they would do so in another year. Anyway, as we debated yesterday, this Bill already has more than enough powers to regulate.
The Minister said at Second Reading that:
“If strengthening of professional standards and the existing regulation do not deliver increased creditor confidence in connected pre-pack sales, the Government will look to bring forward further legislation.”—[Official Report, 9/6/20; col. 1728.]
That was very welcome, but fixing this issue is more urgent than that, given the current situation, and, frankly, it is already clear that professional standards and existing regulations are not working. Yesterday, the Minister praised the ethical and professional standards of the insolvency industry, saying that we should rely on those for independence and so on. That is touchingly naive—that might be the first time anyone has described the Minister in those terms.
Just last week, there were three high-profile pre-packs to related parties, which attracted a high degree of negative publicity. Only one was referred to the pool. Sadly, there are likely to be many more in coming months. Surely the Minister agrees that we should make sure these happen more transparently? As the noble Lord, Lord Hodgson, has pointed out, we may lose the Pre Pack Pool altogether if we do not take action. It wrote to the Minister to say that it is not sustainable under the current voluntary approach. The industry is also in favour; R3 has said that it would like to see action.
Making referral of connected pre-pack sales to the Pre Pack Pool mandatory in this Bill seems the obvious solution. It is very simple and could start working immediately; no new bodies need to be created and there are no material costs involved. Everything needed already exists. The Pre Pack Pool takes a very light-touch approach and can act quickly, so I strongly urge the Minister to include a clause to this effect in the Bill. It may not be enough in the longer term and we should continue to monitor pre-packs, but making referral mandatory would at least improve transparency with no material cost or complication. It would be very helpful if the Minister could give us his views on the usefulness of the Pre Pack Pool—whether he agrees it is unsustainable on a voluntary basis and whether he thinks it matters if it ceases to exist.
There is one subtle difference between my Amendment 61 and Amendment 57 in the name of the noble Lord, Lord Hodgson; mine says simply that a connected pre-pack deal cannot go ahead until it has been referred and the Pre Pack Pool has reported. The noble Lord’s amendment is more robust, saying that the report must also be positive. I would be happy with either approach. We need to improve transparency to prevent creditors being unfairly dumped, however we do it.
Baroness Altmann (Con) [V]
My Lords, I echo the words of previous speakers. I have added my name to Amendment 61 in the name of the noble Lord, Lord Vaux, but I also support the amendment of my noble friend Lord Hodgson of Astley Abbotts. As the noble Lord, Lord Vaux, has said, either approach would at least give a fighting chance of avoiding the sort of gaming of creditors that we have seen so often in the past. Indeed, when I was first involved in the pensions system in the early 2000s, the insolvency restructuring that pre-packs have sometimes engaged in was widespread as a means of dumping the defined benefit pension liabilities.
I fear that this Bill will pave the way for the same type of activity, to the detriment of the Pension Protection Fund and all employers sponsoring defined benefit pension schemes. Therefore, I urge my noble friend to take these amendments seriously; I plead that he look at the activities of the Pre Pack Pool and move to a mandatory approach, which, as has been so well described, would clearly better protect against the sorts of corporate activity that have so often brought capitalism into disrepute.
Lord Adonis (Lab) [V]
My Lords, I have two specific questions for the Minister. Is it the case, as reported in the Times on 26 May, that the Pre Pack Pool’s oversight committee has written to the Minister specifically, notifying him that it will be “unsustainable” unless referrals of pre-pack sales are made mandatory? Secondly, could he confirm that Teresa Graham, the accountant who led the review referred to by the noble Lord, Lord Hodgson, is now in favour of mandatory referrals? She is quoted in the Times as saying:
“To see the demise of the Pre Pack Pool would be utter folly.”
If that is the case, I cannot see how the Government can resist the amendment in the name of the noble Lord, Lord Hodgson, unless they believe that the pool and its whole policy is wrong. If the Minister is not as forthcoming as he expects, I hope the noble Lord, Lord Hodgson, will have the courage of his convictions and bring this back to the House on Report, because this looks otherwise like a classic case of willing the means but not the ends.
Lord Mendelsohn (Lab) [V]
My Lords, I declare my interests as an investor in turnaround and distressed businesses and as a corporate finance professional working in a regulated business.
It is unfortunate to have to return to this issue. I recall that my first duty as a Front-Bencher was to deal with the then Small Business, Enterprise and Employment Bill, where these issues came up. I recall at Second Reading a very powerful consensus over the problems that needed to be addressed, the Graham report recommendations and the feeling that a reserved power was still insufficient to deal with it. It is rather terrifying that we are back in a position of trying to recover a power we never thought good enough in the first place, due to the Government not only never exercising the power to make it mandatory but not really reviewing its performance.
I pay tribute to the noble Lord, Lord Hodgson, who was a strong advocate then and has been a doughty campaigner since. I associate myself with his comments; he summarised the position extremely well. I support Amendment 57 completely. I do so in preference to Amendment 61, but I also praise the noble Lord, Lord Vaux of Harrowden, for his excellent speech and his intention.
There is such a weakness in the system. Pre-packs are everywhere at the moment, and I can see their footprint increasing at some pace. That is not to say that pre-packs are inherently a bad thing. They are a device to try to maintain businesses and jobs. Indeed, this week Oak Furnitureland and its team of administrators were able to use the mechanism in a way that saved the business and brought in an external investor. But far too often they punish staff and small suppliers for management mistakes, and allow poor and improper management conduct to be legalised at the expense of employees and powerless suppliers. There is no fairness or public interest in this.
Nothing better proves the shortcomings of the drafting of the legislation that we are debating, and the Government’s unwillingness to provide better assurances that would give some sense of how the new system would work, than the presence—or rather the absence—of anything about pre-packs in the current framing. As the noble Lord, Lord Hodgson, so correctly said, that is likely to undermine the capacity of monitors and other proposals in the Bill to work effectively.
In general, the pre-packs that involve current owners carrying on by being able to write off their debts, rather than a third-party buyer bringing in fresh thinking and funding, have never sat well with me. My experience is that they provide an unchecked process that allows people to make clean that which should never be considered to be so. Far too often, as the noble Lord, Lord Hodgson, said, people hide behind the claim that they are saving jobs. There is more than one way to do that, and very often there are better ways than by using the same people.
We should recognise that it is not always the wrong outcome for existing owners to keep businesses—an example is the recent pre-pack of Everest, which sold the business back to the owner and secured a good long-term future for it. In that case we should give credit to Jon Moulton’s Better Capital, which referred the matter to the Pre Pack Pool and undertook a proper process to find an alternative. That is the true value of the Pre Pack Pool.
However, there are ways to game the system that are so clearly unacceptable that we must deal with them. In recent weeks we have witnessed, with both Monsoon and Quiz, two uses of the pre-pack system permitting current owners to cherry-pick parts of their businesses to dispose of, allowing them to avoid their debts and responsibilities and to carry out real abuse of the rules. I directly ask the Minister to comment on the Quiz situation—not to justify that particular action, but to tell us how it is possible to allow the system to remain untouched in current circumstances.
May I remind the noble Lord of the facts, so that he can give a policy interpretation? Quiz raised £103 million when floating in July 2017, and the business was valued at £200 million: £93 million of the proceeds went to the owners and £10.6 million went to the business for its growth. Unsurprisingly, the group unravelled well before the pandemic, with frequent profits alerts, as it was a listed business, and at the start of the year the share price went down to less than 10% of the float. The family still control 49% of the company, and, essentially, all activities of the business.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, there is little to add to what has been said. I signed both the amendments, and I agree with what the noble Lords, Lord Hodgson and Lord Vaux, have said, and with what they have proposed both in these and in their other amendments. I also associate myself with the remarks made by the noble Baroness, Lady Altmann, and the noble Lord, Lord Mendelsohn, about pre-packs. Profitable as they may be for some, and right in some instances, they are too frequently a blot on our corporate landscape. They are despised by the public, who recognise them as being too often against the public interest.
It is important to take forward a fulsome operation of the Pre Pack Pool, by mandating its use. As has been explained, there was a provision that could have enabled that, but it expired recently, possibly through unavoidable circumstances. As the noble Lord, Lord Hodgson, also explained, there is a greater need for that provision now, because otherwise even the moratorium, and the good intentions that lie behind it, could be undermined.
Who refers something to the pool could be left open, but it is probably better to specify, as the noble Lord’s amendment does. It does not have to be the purchaser; it could be a monitor duty, making the process look more independent.
As the noble Lord, Lord Hodgson, says in his amendment, there should also be some kind of positive response from the panel. He put “not unreasonable”. I tend to favour something a bit more positive, possibly that it is “fair and reasonable”, which carries an overtone both of an open market or arm’s-length value and of being viewed in the round—again, as the noble Lord, Lord Hodgson, explained in his speech. Indeed, he even used the word “fair” in explaining what should happen.
If we compare the two amendments, which I did when I signed up to both, it comes down to where they are placed in the relevant schedule and whether to link them to connected persons rather than to associates, as the noble Lord, Lord Vaux, has done. As “connected persons” was the language used in earlier debates on the Bill, that is the placing that caught my eye, but I would not bet against the noble Lord, Lord Hodgson, having found possibly the better spot. However, now that we are alert to it, an optimal draft could be produced, and I urge the Government to do that.
Lord Stevenson of Balmacara (Lab) [V]
My Lords, we have had a very good debate on this issue today. It is an accident of the way things went yesterday that we have been given this time, and I am grateful to the House authorities for allowing us to spend some time on this important topic.
The noble Lords, Lord Hodgson and Lord Vaux, gave brilliant exposés of why pre-packs are causing more harm than good, as they put it, although both were valiant in suggesting that it remained on the agenda or was a “valuable tool in the toolbox”, which was another phrase used, although the noble Lord, Lord Hodgson, said that it has been a very loose end recently. Increasingly, perhaps we need to think hard about how this should go forward.
Like my noble friend Lord Mendelsohn, I have had an interest in pre-packs since we were involved in the quite intensive discussions on the small business Act in 2015. Like him and many people, I regret that the power that was inserted into that Act has lapsed, because that seems a missed opportunity and we should be thinking hard about how that might go. Perhaps when the Minister responds he could explain again why he thinks that the amendment in the name of the noble Baroness, Lady Neville-Rolfe, should not be brought forward again. It seems that it would give him the powers that he might need in the future to take action.
The key issue here is not whether the pre-packs will continue to cause trouble but the damage that they might do to the Bill. I hope that the Minister will recall that, when we had our first meeting on the Bill and we were going through some of the main issues, I raised the question of whether the Bill would have an impact on pre-packs and vice versa. The answer I got was that, in the view of the drafters of the Bill, it would not materially have an effect one way or another. However, the evidence we have heard today suggests that that is not the case. Although the Teresa Graham report of a few years ago and its suggestion of a pre-pack pool has been working reasonably well in practice, it is still a voluntary scheme, as was picked up, and if it is indeed rewarding the good guys but not catching the bad ones, the Government are on notice to do something about that. Additionally, if the Pre Pack Pool itself falls into desuetude, obviously a major issue is looming.
The amendments here are very much autonomous, and it has been a useful debate. Of course, if they were accepted, they would effectively be saving a bad system and not introducing good regulation. As the noble Baroness, Lady Altmann, said, we need to think about a mandatory approach here. When the Minister responds, we will be looking for guidance from him about whether this is the opportunity to do so. Would he be prepared to reconsider his initial view on the amendment proposed by the noble Baroness, Lady Neville-Rolfe, to give powers back to the Government to act if they are required, or will we have to seek another opportunity?
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
I thank and pay tribute to my noble friend Lord Hodgson for ably introducing this grouping and speaking so powerfully on this subject. In fact, such is the power with which he speaks that when he spoke, claps of thunder echoed around the Chamber. We do not have any of our right reverend Prelates here to advise us, but perhaps my noble friend’s amendments have support from authorities even higher than those in this House. I am also grateful to the noble Lord, Lord Vaux, for speaking so eloquently on this topic, and grateful to him, my noble friend and the noble Lord, Lord Mendelsohn, for the time that they made available for us to discuss these issues in the last couple of weeks.
At the risk of further increasing my noble friend’s blood pressure, I say to him that the measures in the Bill are indeed intended to help companies to maximise their chances of survival during the Covid-19 emergency, to protect jobs and support the recovery of the economy. That is why other measures, which would not necessarily alleviate the impact of the current emergency, have not been included in the Bill.
I will reply also to the points from the noble Lords, Lord Adonis and Lord Mendelsohn. The Pre Pack Pool wrote to me on this subject a few weeks ago, and I responded on 29 May. I understand its concerns; officials will be meeting the pool and the Insolvency Service to take forward the discussions and the concerns that it has rightly raised.
I also see that the Small Business, Enterprise and Employment Act 2015 has provided some inspiration for these amendments, which would require mandatory reference to the aforementioned Pre Pack Pool. Aside from specific considerations as to whether a requirement for a positive opinion from the pool might conflict with the strategy duties of the administrator, I would be concerned that the amendment might impose an additional burden on businesses at this difficult time. Furthermore, as my noble friend Lord Hodgson reminded us, the Pre Pack Pool operates as a limited company, and I ask whether it is right to restrict the required opinions to one source of supply.
There are already legislative and professional regulatory requirements in respect of pre-pack sales. When deciding whether to go ahead with any sale in administration, the administrator is required to take into consideration the statutory objectives of administration, which include rescuing the company as a going concern and achieving a better result for creditors as a whole. The administrator must also send a detailed narrative explanation to creditors, justifying why a pre-pack sale was undertaken. That is sent to the administrators’ regulatory body, which monitors it to ensure that administrators comply with the spirit as well as the letter of this requirement. At Second Reading, I explained that we continue to work with regulators and industry stakeholders to discuss the options for strengthening the professional regulatory requirements. I can tell noble Lords that if that fails to give greater assurance to creditors, we will consider bringing forward further legislation.
For the reasons that I have set out, I am therefore unable to accept these amendments and I hope that my noble friend and the noble Lord, Lord Vaux, will therefore be able to withdraw and not press their amendments.
Lord Vaux of Harrowden [V]
In his response, the Minister did not answer the question of whether he believes that the Pre Pack Pool is useful, sustainable on a voluntary basis, and whether it matters if it ceases to exist. Could he answer that now?
Lord Callanan
I do not want to go any further than what I said in my reply. I have been in correspondence with the Pre Pack Pool and we have arranged for officials from my department and from the Insolvency Service to meet with it further to discuss its concerns.
Lord Adonis [V]
Could Members of the Committee see before Report the letter of 29 May sent in reply to the pool, which the Minister mentioned?
Lord Callanan
In principle I have no objection to releasing that; obviously, I would need to speak to officials and to the recipients to check whether they are all happy with that. I do not know whether it was sent confidentially basis or whether it is available for publication, but I will certainly look at that.
Lord Hodgson of Astley Abbotts
My Lords, I thank all noble Lords who have spoken in support of this amendment and the amendment in the name of the noble Lord, Lord Vaux, and thank him for his support for the approach that we are taking. I particularly thank the noble Lord, Lord Mendelsohn, who has a lot of experience in this field; his evidence and his views were very persuasive indeed. To the noble Baroness, Lady Bowles, who was a co-signatory, I say that the reason that I chose “not unreasonable” as opposed to “fair and reasonable” was to put the bar as low as possible, so we had the least problem getting the government horse over the jump. But even this, apparently, is not good enough.
I found my noble friend’s answer thin—and this describes only half of what I feel. To describe this as imposing an additional requirement at this time seems an extraordinary justification; and to say that it is not right to depend on the pre-pack pool alone—the pre-pack pool was set up as a result of a government review—seems equally dubious logic. He says that we are going to discuss options of a right way forward—but we are about to come out of lockdown. The result of the pandemic will be hundreds of firms in very grave difficulties. Some of them need saving. But they need saving in a way that is fair to the creditors, to the pension fund regulator and all the other people involved. I do not think that discussing options as we go into that storm—which is coming; it is bound to come—is right. I heard what he said, I regret that he cannot take this forward and make at least some compromise suggestions, and I reserve the right to bring this back on Report. In the meantime, I beg leave to withdraw the amendment.
Lord Callanan
(b) a master agreement for securities financing transactions.”Member’s explanatory statement
This amendment provides for a master agreement for securities financing transactions to be a “contract or other instrument involving financial services” for the purposes of new section A18 of the Insolvency Act 1986.
(b) a master agreement for derivatives.(2) “Derivative” has the meaning given by Article 2(5) of Regulation (EU) No. 648/2012.”Member’s explanatory statement
This amendment provides for a master agreement for derivatives to be a “contract or other instrument involving financial services” for the purposes of new section A18 of the Insolvency Act 1986.
(b) a master agreement for spot contracts.”Member’s explanatory statement
This amendment provides for a master agreement for spot contracts to be a “contract or other instrument involving financial services” for the purposes of new section A18 of the Insolvency Act 1986.
(2) “Capital market investment” has the meaning given by paragraph 14 of Schedule ZA1.”Member’s explanatory statement
This amendment provides for an agreement relating to the issue of capital market investments to be a “contract or other instrument involving financial services” for the purposes of new section A18 of the Insolvency Act 1986.
Lord Callanan
Member’s explanatory statement
This amendment changes the definition of the “relevant period” so that the term is defined by reference to the coming into force of the Schedule rather than by reference to the coming into force of the Act as a whole.
Lord Callanan
(b) a master agreement for securities financing transactions.”Member’s explanatory statement
This amendment provides for a master agreement for securities financing transactions to be a “contract or other instrument involving financial services” for the purposes of new Article 13D of the Insolvency (Northern Ireland) Order 1989.
(b) a master agreement for derivatives.(2) “Derivative” has the meaning given by Article 2(5) of Regulation (EU) No. 648/2012.”Member’s explanatory statement
This amendment provides for a master agreement for derivatives to be a “contract or other instrument involving financial services” for the purposes of new Article 13D of the Insolvency (Northern Ireland) Order 1989.
(b) a master agreement for spot contracts.”Member’s explanatory statement
This amendment provides for a master agreement for spot contracts to be a “contract or other instrument involving financial services” for the purposes of new Article 13D of the Insolvency (Northern Ireland) Order 1989.
(2) “Capital market investment” has the meaning given by paragraph 14 of Schedule ZA1.”Member’s explanatory statement
This amendment provides for an agreement relating to the issue of capital market investments to be a “contract or other instrument involving financial services” for the purposes of new Article 13D of the Insolvency (Northern Ireland) Order 1989.
Lord Callanan
Member’s explanatory statement
This amendment changes the definition of the “relevant period” so that the term is defined by reference to the coming into force of the Schedule rather than by reference to the coming into force of the Act as a whole.
Lord Callanan
(a) in sub-paragraph (1)”Member’s explanatory statement
This amendment makes a consequential drafting change as a result of the insertion of a second amendment to paragraph 24 of Schedule 17A to the Financial Services and Markets Act 2000.
Member’s explanatory statement
This amendment provides that the powers conferred by new section 355B of the Financial Services and Markets Act 2000 will be available to the Bank of England in relation to certain types of institution regulated by the Bank.
“(b) in sub-paragraph (2), after “recognised investment exchange” insert “(other than the reference to “an authorised person” in section 355B(2)(a))”.”Member’s explanatory statement
This amendment ensures that the application of new section 355B of the Financial Services and Markets Act 2000 in relation to the Bank of England works as intended.
“355B Enforcement of requirements imposed by section 355A(1) For the purpose of enforcing a requirement imposed on a company by section 355A(2) or (3), the appropriate regulator may exercise any of the following powers (so far as it would not otherwise be exercisable)—(a) the power to publish a statement under section 205 (public censure);(b) the power to impose a financial penalty under section 206.(2) Accordingly, sections 205 and 206, and so much of this Act as relates to either of those sections, have effect in relation to a requirement imposed by section 355A(2) or (3) as if— (a) any reference to an authorised person included (so far as would not otherwise be the case) a reference to a company falling within any of paragraphs (a) to (d) of section 355A(1),(b) any reference to a relevant requirement included (so far as would not otherwise be the case) a reference to a requirement imposed by section 355A(2) or (3), and(c) “the appropriate regulator” had the same meaning as in section 355A.(3) In this section “the appropriate regulator” has the same meaning as in section 355A.”Member’s explanatory statement
This amendment provides that the powers of the FCA and PRA to publish a statement about a regulatory breach or to impose a financial penalty are exercisable in relation to a contravention by a company of the requirements imposed by new section 355A(2) and (3) of the Financial Services and Markets Act 2000.
“( ) Sections 197, 198 and 202A of the Banking Act 2009, and sections 201 and 202 of that Act, so far as relating to those sections, apply in relation to a failure by an infrastructure company to comply with subsection (2) or (3) above as they apply in relation to a compliance failure within the meaning of Part 5 of that Act.”Member’s explanatory statement
This amendment provides that the powers of the Bank of England to publish a statement about a regulatory breach, to impose a financial penalty or to seek an injunction are exercisable in relation to a contravention by an infrastructure company of the requirements imposed by new section 124A(2) and (3) of the Financial Services (Banking Reform) Act 2013.
Lord Callanan
(b) a master agreement for securities financing transactions”Member’s explanatory statement
This amendment provides for master agreements for securities financing transactions to be excluded from the operation of new section 233B of the Insolvency Act 1986.
(b) a master agreement for derivatives.(2) “Derivative” has the meaning given by Article 2(5) of Regulation (EU) No. 648/2012.” Member’s explanatory statement
This amendment provides for master agreements for derivatives to be excluded from the operation of new section 233B of the Insolvency Act 1986.
(b) a master agreement for spot contracts.”Member’s explanatory statement
This amendment provides for master agreements for spot contracts to be excluded from the operation of new section 233B of the Insolvency Act 1986.
(2) “Capital market investment” has the meaning given by paragraph 14 of Schedule ZA1.”Member’s explanatory statement
This amendment provides for agreements relating to the issue of capital market investments to be excluded from the operation of new section 233B of the Insolvency Act 1986.
“Aircraft equipment21_ Nothing in section 233B affects the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 (S.I. 2015/912).”Member’s explanatory statement
This amendment clarifies the relationship between the proposed new section 233B of the Insolvency Act 1986 and the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015.
Lord Callanan
(b) a master agreement for securities financing transactions.”Member’s explanatory statement
This amendment provides for master agreements for securities financing transactions to be excluded from the operation of new Article 197B of the Insolvency (Northern Ireland) Order 1989.
(b) a master agreement for derivatives.(2) “Derivative” has the meaning given by Article 2(5) of Regulation (EU) No. 648/2012.”Member’s explanatory statement
This amendment provides for master agreements for derivatives to be excluded from the operation of new Article 197B of the Insolvency (Northern Ireland) Order 1989.
(b) a master agreement for spot contracts.”Member’s explanatory statement
This amendment provides for master agreements for spot contracts to be excluded from the operation of new Article 197B of the Insolvency (Northern Ireland) Order 1989.
(2) “Capital market investment” has the meaning given by paragraph 14 of Schedule ZA1.”Member’s explanatory statement
This amendment provides for agreements relating to the issue of capital market investments to be excluded from the operation of new Article 197B of the Insolvency (Northern Ireland) Order 1989.
“Aircraft equipment21_ Nothing in Article 197B affects the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015 (S.I. 2015/912).”Member’s explanatory statement
This amendment clarifies the relationship between the proposed new Article 197B of the Insolvency (Northern Ireland) Order 1989 and the International Interests in Aircraft Equipment (Cape Town Convention) Regulations 2015.
Corporate Insolvency and Governance Bill
Tuesday 23rd June 2020
(3 years, 10 months ago)
Lords ChamberRead Full debate Corporate Insolvency and Governance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 114-I Marshalled list for Report - (18 Jun 2020)
16:33 - Division conducted remotely on Amendment 14 - Ayes: 160 / Noes: 241 - Amendment 14 disagreed.
17:03 - Division conducted remotely on Amendment 15 - Ayes: 136 / Noes: 220 - Amendment 15 disagreed.
18:29 - Division conducted remotely on Amendment 45 - Ayes: 155 / Noes: 326 - Amendment 45 disagreed.
The Deputy Speaker (Lord Bates) (Con)
My Lords, a limited number of Members are here in the Chamber, respecting social distancing, and if the capacity of the Chamber is exceeded I will immediately adjourn the House. Other Members will participate remotely, but all Members will be treated equally, wherever they are. For Members participating remotely, microphones will unmute shortly before they are due to speak—please accept any on-screen prompt to unmute. Microphones will be muted after each speech. I ask noble Lords to be patient if there are any short delays between physical and remote participants. I should remind the House that our normal courtesies in debate still very much apply in this new hybrid way of working.
I shall begin by setting out how these proceedings will work. A participants list for today’s proceedings has been published and is in my brief, which Members should have received. I also have lists of Members who have put their names to the amendments or who have expressed an interest in speaking on each group. I will call Members to speak in the order in which they are listed. Members’ microphones will be muted by the broadcasters, except when I call a Member to speak. Interventions during speeches or “before the noble Lord sits down” are not permitted, and uncalled speakers will not be heard. Other than the mover of an amendment or the Minister, Members may speak only once on each group. Short questions of elucidation after the Minister’s response are permitted but discouraged; a Member wishing to ask such a question, including Members in the Chamber, must email the clerk.
The groupings are binding and it will not be possible to degroup an amendment for separate debate. A Member intending to press an amendment already debated to a Division should give notice of that fact in the course of the debate. Leave should also be given to withdraw amendments. When putting the Question, I will collect voices in the Chamber only. If a Member taking part remotely intends to trigger a Division, they should make this clear when speaking on the group. We will now begin.
Clause 1: Moratoriums in Great Britain
Amendment 1
Lord Hope of Craighead
“(ca) a list by the directors of all known creditors of the company,”Member’s explanatory statement
This amendment is to assist the monitor in their duty to notify every creditor of the company of whose claim he or she is aware.
Lord Hope of Craighead (CB) [V]
My Lords, Amendment 1 in my name is the first of 32 in this group, but it has no connection with the others. Fortunately, I need to speak to my amendment only briefly and do not intend to press it, for reasons I will explain.
The amendment, which is in the same terms as one I moved in Committee, proposes an addition to the list of relevant documents that must accompany the director’s application for a moratorium. My concern has been that the system that the Bill lays down for informing creditors that a moratorium is in force, and when it will come to an end, is too weak, because the monitor’s duty is to notify only those creditors of whose claims he is aware. There is no suggestion in the Bill that he is under a duty to make inquiries. I proposed that, at the outset, the directors should provide a list of all known creditors of the company when making the application.
When the Minister replied, he gave reasons for not accepting the amendment that suggested that he had not understood my point. He said that it had never been the Government’s intention that the moratorium should be used to
“‘line up the ducks’ for a pre-pack administration”.—[Official Report, 16/6/20; col. 2092.]
He added that, as with all administrations, the likelihood of a substantial return to unsecured creditors was small. I, however, had made no mention of going into administration.
The purpose of the moratorium, as I understand it, is to keep the company alive as a going concern. However, freezing the debts for the period of the moratorium is bound to have consequences for the creditors. They might have to take urgent steps to avoid financial embarrassment until their bills are paid, such as adjusting their cash flow or seeking to extend their overdraft. They need to know what is going on. That is especially the case for creditors—many of them SMEs—whose debts are not secured. Unlike the banks and HMRC, they are likely to have nothing to fall back on if the moratorium does not succeed in rescuing the company.
The issue was too important to be overlooked, so I decided to raise it again on Report, and I wrote to the Minister to explain why. Happily, I have received his reply, which is most useful, and for which I am very grateful. The essence of it, which I want to put on the record, is that the Minister agrees that
“the monitor needs to have contact details for the company’s creditors at a very early stage … to enable the monitor to comply with their duty to notify creditors … In order that the proposed monitor can make the statements … that it is likely that a moratorium would result in the rescue of the company as a going concern, they will need to undertake enquiries into the financial position … of the company. … It is envisaged that the proposed monitor would … obtain a list of the company’s creditors”
and their relevant details as part of these inquiries.
“Guidance to this effect will be provided to insolvency practitioners … the monitor … will have to evaluate whether the information provided is of a nature they can rely upon, or whether they need to undertake further enquiries … to ensure they have a list of all creditors.”
They can also take further measures during the moratorium to obtain any information they require, and this could include information about creditors. Information and feedback on the effectiveness of the measures in the Bill will be monitored, and use could be made, if necessary, of the power in Section A6(4) to add to the list of relevant documents.
In the light of the information that the Minister has given me, I am satisfied that it would place an unnecessary burden on the directors to submit a list of the creditors when applying for a moratorium, as I was proposing. I would, however, ask the Minister to confirm two things: first, that my understanding of the position, as I have narrated it, is correct; and, secondly, that a copy of his letter to me has been placed in the Library. I beg to move.
Lord Leigh of Hurley (Con)
My Lords, there are seven amendments in my name and that of my noble friend Lord Trenchard: Amendments 2, 6, 7, 9, 10, 16 and 17. All seven, however, address pretty much the same point, which is to allow the directors of a company, or its monitors—both those in the UK and those overseas—to enter into a moratorium, extend its life or end it, if they believe that, even if there is no hope for the company itself, the business operating within that company is likely to be saved.
I appreciate that the Government have never seen the moratorium as part of the administration legislation —they argue that the rules on administration are adequately covered elsewhere—but it is the job of this House to help the Government by explaining how events actually evolve in the world of business and fervently hope that the Government listen to us.
I am very sorry that so many amendments from Committee did not make it to Report, in particular those from the noble Lord, Lord Stevenson of Balmacara, the noble Baroness, Lady Bowles, the noble Lord, Lord Hodgson, the noble Lord, Lord Palmer, and others. Wonderful real-world experiences were offered during Committee, primarily around the role, conduct and independence of the monitor, all of which have been lost, after being discussed in this House and the other place. That is a shame.
The issues raised in my amendment attracted quite some comment and, if I may so, approval from all sides of the Committee, I think I am right in saying. I remain very grateful to noble Lords from all sides of the House who spoke in support in the Chamber and to me directly subsequently. I am grateful to the Minister and his officials, with whom I have had some very open and helpful conversations in the past few days. I was not graced with a letter as the noble and learned Lord, Lord Hope, was; none the less, we have had a discussion.
There seems to be a fixation with rescuing the company. The company is no more than a vehicle. I think all this stems from the Enterprise Act, where there was confusion in the debate, but I hope there is no confusion now and that we can all agree that we want to arrange matters as best we can so that businesses and jobs, not necessarily companies, survive a liquidity crisis and stay alive. It may well be that sometimes an administration is helpful and a sensible outcome, but the current drafting puts pressure on the monitor to try to save a company where, frankly, there may be no point.
Likewise, the desire to avoid pre-packs is misguided. Yes, there have been some abuses, which have been public and well-documented, but they are small and typically relate to small insolvencies, and the Small Business, Enterprise and Employment Act created the excellent pre-pack pool, which is now in real danger of collapse as a result of this Bill. I welcome Amendment 45, in a later group, which addresses this point.
There is concern that pre-packs favour one particular purchaser, the existing owners, as they have the advantages of knowing the business and speed, so a moratorium in those circumstances is perfect. The time extension allows the monitor to ensure fair play on information access and for new buyers to be sourced and approached. However, it will be very difficult for a monitor to tell the court that administration is not likely. In fact, it will be the reverse. I spoke to an insolvency practitioner only last week who is working on a particularly troubled business right now, with some 10,000 employees and more than 30 different companies. Not all of them will be saved; at least some will go. However, the rest could be saved and the entire business could be saved, but under these proposals he will not get a moratorium, despite being certain that a solution can be found. He cannot take a group approach because under English law each company is a separate entity. He is beside himself in despair at this proposed legislation. Very few real-world rescues are ever done with existing entities. It is not always a bad result that a business is bought through administrators. If creditors lose out, at least there is a chance to recoup some of those losses through future trade.
I am a little worried by the withdrawal of the Henry VIII powers in government Amendments 3, 8 and 11 in this group, as their removal may restrict the Government from making helpful changes. The Government are clearly more swayed by the appeal of the noble Lord, Lord Stevenson, than by mine. I ask the Minister to think again about whether those amendments achieve what he seeks. I hope he will listen to petitioners, some of whom he has now met with me, and commit at the Dispatch Box to consider a change, as sought in these amendments, if it is clear that business recovery will be impeded without the proposals that my noble friend Lord Trenchard and I seek. If the Bill does not give sufficient time for directors and monitors to find a sensible way out for businesses, there will simply be closures and asset realisations. I look forward to hearing what the Minister will say and very much hope that he will give me some assurances that the Government will find a way to keep an open mind, because I believe that if there were a Division, the House would support these amendments.
Viscount Trenchard (Con)
My Lords, I am also minded to support Amendment 1, moved by the noble and learned Lord, Lord Hope of Craighead, because it should not be too difficult a task for the directors to undertake and would be likely to save time afterwards, once the monitor starts his work. However, given that the noble and learned Lord has expressed satisfaction with what the Minister wrote to him, far be it from me to doubt his learned judgment on that matter.
I speak in support of Amendment 2 and the other amendments tabled by my noble friend Lord Leigh, to which I have added my name. I declare my interests as listed in the register. I know a little about corporate restructurings, having worked in corporate finance and mergers and acquisitions for some 40 years. I thought that the amendments proposed in Committee by my noble friend made obviously good sense, and I have heard nothing from the Minister that causes me to change my mind—at least, so far.
As I mentioned in Committee last week, this question was discussed during the debates on the Enterprise Act 2002. My noble friend Lord Hunt of Wirral said in the debate in Committee that
“the greatest asset of a company is the people whom it employs … I believe that rescuing the company on its own is a pointless objective … the objective of preserving all or part of the company’s business would be beneficial to the employees of the business, creditors of the company who may be paid out of the proceeds of the sale of the business or from future profits, and of course it would be beneficial to the economy as a whole”.—[Official Report, 29/7/02; cols. 764-65.]
My noble friend Lord Hodgson of Astley Abbotts said on Report that
“by inserting … ‘and the whole or part of its business’… an administrative receiver or administrator”
would be empowered
“to deal even-handedly with the whole or part of the company’s business.”—[Official Report, 21/10/02; col. 1102.]
Of course, the views of my noble friends in 2002 related to a different Bill from the one before your Lordships’ House today, but I nevertheless believe that their comments are equally relevant to the points we are considering now. New Section A6(1)(e) requires a monitor to say that in his view it is likely that a moratorium would result in the rescue of the company as a going concern. Even if the monitor thinks that the company’s business, or some part of it, would be rescued if the company could obtain a moratorium, this would not provide sufficient grounds for the court to grant a moratorium.
Under the Enterprise Act 2002, obtaining a moratorium through administration is not as restrictive as proposed under the provisions of the Bill. It is necessary for an administrator to show that there is a reasonable likelihood of achieving one of three statutory objectives: rescuing the company as a going concern; achieving a better result for the creditors as a whole than would be likely on a winding up; and realising property in order to make a distribution to secured or preferential creditors. The second of those objectives is the one most often relied on as it includes the rescue of a business or one or more of several businesses when, as is often the case, it is impossible to show that the company as a whole can be rescued.
Prior to 2002, the position was the same, although the purposes of administration were not precisely the same. They were: the survival of the company and the whole or part of its undertaking as a going concern; the entering into of a creditors’ voluntary arrangement; the sanctioning of a scheme under Part 26 of the Companies Act; and a more advantageous realisation of the company’s assets than would be effected on a winding-up. Again, the last of those four options was the one relied on where, even though a company was doomed because of the burden of debt, its business or a part of its business could be rescued.
Under the new moratorium procedure, the only type of restructuring proposal that can be advanced is one that involves a company rescue. This means that the options available in a moratorium are significantly more limited than they would be in an administration. Perhaps the Minister can tell the House whether the Government are deliberately trying to restrict the use of moratoriums and do not want to give the directors that degree of freedom if they are trying to save the business but not the company.
However, very often when a business is successfully rescued the company may also be rescued, although that category of company would not be able to use this new procedure. I understand that the Government believe that if rescuing a company’s business were sufficient grounds for a moratorium to be granted, the company would be tempted to use the moratorium to prepare for a pre-pack administration. If this is the case, perhaps my noble friend the Minister could explain to the House why the Government think so.
As my noble friend Lord Leigh has already explained, companies as legal entities are hardly ever saved in an insolvency situation and the connection between widening the grounds for entering a moratorium and the possible abuse of the pre-pack mechanism is, I believe, tenuous at best. Pre-packs have developed as a mechanism for selling a company’s business immediately after it goes into administration, so that the administrator—not the directors—is responsible for breach of duty if the business or assets are sold for less than fair value. The moratorium is surely intended to prevent creditor action, but creditor action has never been a check on an abusive pre-pack. It would be a pity if the moratorium were to be limited to cases in which a debt restructuring is the only way forward, rather than other forms of business rescue.
In conclusion, I think that the Minister has shown great wisdom in introducing so many amendments to dispense with Henry VIII powers, which the Government had thought they might wish to include—although I share my noble friend Lord Leigh’s reservations about some of them in the event that they may restrict the Minister from providing enough comfort on the points that he and I have raised.
Baroness Drake (Lab) [V]
My Lords, I refer to my entry in the register of interests and shall speak to Amendment 13 in my name. In this group the Government have brought forward helpful amendments to seek to prevent bank debts and other financial lendings that are accelerated during the moratorium from gaining super-priority status. This is a welcome change. However, serious risks remain of gaming to give current or future lenders access to super-priority, avoid pension liabilities and incentivise insolvency over rescue for certain creditors.
Amendment 13 would remove the exemption which payments in respect of pre-moratorium debts arising under a contract or instrument of financial services have from the payment holiday and from super-priority in the event of an insolvency process. Notwithstanding the Government’s amendments, real concerns remain that lenders may be able to circumvent their intent by the drafting of their lending agreements; the definition of accelerated debt could be sidestepped so that lenders can continue to bring forward debt and benefit from super-priority. It is unclear, for example, whether on-demand debt that is called during the moratorium would be caught by the definition of accelerated debt and debts accelerated prior to the moratorium would continue to be granted super-priority.
Adding to these concerns is the width of the definition of financial institution debt which would qualify for super-priority, covering intra-company loans, for example. In addition, finance debts due prior to or in the moratorium continue to be exempt from the payment holiday. Debts due to the pension scheme are not, would not be payable and would be outranked in subsequent insolvency. That exemption and the super-priority given to that financial debt, which are permanent provisions within the Bill, will inevitably lead to novel forms of moral hazard when it comes to pension liabilities.
This is a fast-track Bill containing permanent, major changes and scrutiny has consequently been fettered, but government Amendment 80 in this group gives a power enabling the Secretary of State, by regulation, to change the definition of moratorium debt and priority pre-moratorium debt. This is a welcome concession by the Government, because it implicitly recognises the arguments that many noble Lords have made that it allows the Government to respond to actual experience of gaming and perverse behaviours. Will the Minister confirm that the intention of Amendment 80 is to allow the Government to quickly address the risks other noble Lords and I have identified when they emerge and to change the definition of moratorium debt and priority pre-moratorium debt in response? Will the Government commit to monitor closely the impact of the provisions on moratorium debt and priority pre-moratorium debt, and to consult relevant bodies on the real concerns around super-priority status, the definition of accelerated debt and the implications for pension scheme debt?
Baroness Warwick of Undercliffe (Lab) [V]
I added my name to Amendment 13 and I set out in Committee my concerns about the Bill. As I said then, I fully support the intention behind it—that the disruption caused by Covid-19 should not be allowed to trigger the failure of otherwise financially viable companies—but I was anxious, and I remain anxious, that some of the permanent and far-reaching proposals would be damaging to pension funds and to their members in the longer term. I assumed that this damage was unintended and was caused by the speed with which this package of protective measures had had to be introduced, and I am pleased that the Government have gone some way to acknowledging this in the amendments they have brought forward.
Other noble Lords have set out in detail the problems that the Bill would cause as currently drafted. I emphasise just one point in relation to defined benefit pension schemes. The stability and effectiveness of the current system in dealing with insolvency has depended on unsecured pension debts ranking side by side with debts owed to other unsecured lenders. This has underpinned all valuation funding and covenant discussions. The super-priority status granted by the Bill to finance debts in an insolvency following a moratorium undermines that stability and endangers members of affected pension schemes, while preventing the PPF acting effectively as creditor. As I said in Committee, it also undermines the role of the regulator. However, the Government have clearly made efforts to address these concerns and go some way to addressing the issues raised by me and other noble Lords. I have been convinced that the Government want to make this work and will ensure that the PPF has access to and influence on discussions about recovery plans.
The Secretary of State will have access to considerable Henry VIII powers in the Bill and will be able to intervene swiftly if it seems that restructuring plans and insolvency procedures are being abused, to the detriment of pension scheme members. So in thanking the Minister for the way he has responded to the concerns we in this House have expressed about the Bill, I urge him to stay alert to any attempts to undermine the assurances he has given that the position of pension scheme members will not be weakened, and that their lifeboat—the protective umbrella of the PPF—will not be undermined in any restructuring and insolvency discussions.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I draw attention to my interests in the register. I support Amendment 13 and what has been said already about it. I am a signatory to that amendment, but I shall concentrate on Amendment 14. The Times this morning reports that Intu, owner of shopping centres, is seeking a standstill on loans from its banks, otherwise it will go into administration. Without commenting on the merits of the case, save to mention that coronavirus has stopped rent payments, the facts are writ large: it is all in the hands of banks.
The idea of a moratorium is as a formal standstill, a breathing space for a company to trade out of its problems, get back on its feet or at least find a way to reorganise without the situation deteriorating due to a feeding frenzy of creditors, each trying to get at the assets before someone else does. For all essential suppliers other than financial institutions the moratorium terms are that they must continue with normal supply, with no demands for up-front payments or elevated prices that would destroy cashflows and undermine the purpose of a moratorium. But not for banks: they have no constraints and are free to demand accelerated payment. So there is a feeding frenzy exclusively reserved for the banks.
Baroness Altmann (Con) [V]
My Lords, I support Amendments 13 and 14. I have added my name to the former, as well as to Amendment 75 in this group, which I will briefly speak to.
I echo the words of many noble Lords in this debate, and I stress that I support the aims of the Bill and am very grateful to the Government for introducing so many amendments. It is testament to the power of and wisdom in this House that the Government’s amendments have significantly improved the Bill and reduced some of the risks that we highlighted during its earlier stages in our House. I particularly welcome the Minister’s amendments on security for pension schemes and the Pension Protection Fund. I declare my interests as set out in the register.
However, I must agree with some of the words of caution that we have heard so far in this debate. Yes, there may be some improvement and it is welcome that, for example, government Amendment 80 would allow Ministers to step in if necessary, should there be gaming of the moratorium and the creditor priority. However, I have to agree with the noble Baroness, Lady Bowles, and other noble Lords, who have explained that there will be gaming—it is not a question of whether. The idea that banks will not behave like that does not reflect what many of us have already witnessed over the years in the real world. As my noble friend Lord Leigh of Hurley rightly said, there is expertise in this House which can inject into the current situation the real-world experience that could be so important in averting some of the problems we alerted the Government to during the Bill’s early stages.
Financial creditors, including but not limited to banks, will be needed to potentially rescue a company that is going through the moratorium and to help it avoid insolvency. However, there are other elements such as intra-company loans, and in that case, there could be problems regarding recovery from creditors. I agree with my noble friend Lord Leigh that rescuing a business is not the same as rescuing a company—that is absolutely right, as my noble friend Lord Trenchard also explained. However, in many cases defined benefit pension schemes would not have an opportunity to recover money in future trading, should assets be stripped away and the creditor status be undermined by the leapfrogging that can occur with financial creditors. We must try to help save businesses and jobs through the liquidity crisis. I have added my name to Amendment 75 because the issue of jobs and a company’s workers is so important; they should have a role in this process.
I hope that the Government and the Minister can reassure us of the intention to alert the Pension Protection Fund to risks and to step in should there be gaming. I support the intentions behind the Bill.
Baroness Kramer (LD) [V]
My Lords, my name is added to Amendment 14. I cannot better the speeches from my noble friend Lady Bowles and the noble Baroness, Lady Altmann. However, I ought to add a few words, because I am probably one of a small number of people in this House and the other place who have been a creditor to a company taken through the Chapter 11 process in the United States, as I was when I worked there for a major US bank.
It is not exceptional behaviour but standard practice to seek ways to accelerate payment to get it into the moratorium period. I would have been considered remiss in my responsibilities had I not made sure that, in the various legal contracts in which lending was arranged, clauses existed that would enable me to achieve that acceleration.
As I also know from my own experience, acceleration is not the only issue; there is also the ability to make sure that a bank can take security when a company finds itself entering into financial crisis. That helps to move the financial institution’s debts much higher up the food chain. I hope that the language in the various amendments that try to deal with this problem is understood as dealing with the issue of security as a mechanism for acceleration, and not just clauses which very directly achieve acceleration.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I put my name to Amendment 14. Before I speak to it, I draw the House’s attention to my entry in the register of interests.
I tabled a similar amendment in Committee, looking at how financial institutions and banks might game the system. When I listened to him, my noble friend the Minister seemed to give a positive answer—for which, many thanks—but when one reads col. 2094 of the Committee stage debate on 16 June, the words are not quite as strong as I had hoped. So I support Amendment 14 and want to press my noble friend a little further, for two reasons.
The first is what I might call the Pepper v Hart reason. Courts can go to debates in your Lordships’ House and the House of Commons and use Ministerial Statements and replies to discern what Parliament’s wish was when legislation was passed. Not a lot was said in the House of Commons, because it all went through in a single day, but the words of the Lords Minister, the noble Lord, Lord Callanan, have been quoted extensively and will be so in future. He will probably have a starring role in a number of law cases in the years ahead. So I hope, as we come to the dénouement of the Bill, that he will be able to lay out the case clearly, cogently and simply.
Insolvency can seem as dry as dust, but it is about people. It is about men and women who have struggled and given months and years of their life to building up a business, only to see it collapse before their eyes. Sometimes it is because of their incompetence, but often it is because of events over which they have absolutely no control, such as the pandemic. We therefore owe it to people like them to have absolute clarity about their position, their rights and their responsibilities.
I will go back to the real-life example I gave in Committee; I ask my noble friend the Minister to boil down his response when he comes to reply. A struggling company; a £10 million term loan; £1 million is in default, and a pre-moratorium demand has been made. The company goes into the moratorium. Of course, the £1 million is a pre-moratorium debt and is therefore covered, but that demand is a default on the whole loan. Therefore, using the financial services cover, the bank says, “I want the £9 million, thank you very much.” Has that hole been blocked in what my noble friend is putting before the House today? I thought he said that he was going to, but this is quite complicated. It would be helpful for the House, and indeed for the law courts in future, if he could make it clear that that is the case—that is, that banks cannot game the system and use a pre-moratorium event that is protected under the moratorium to enforce claims under the moratorium because they are financial services.
My second question concerns what I call the “Gulag issue”. In real life, in the example I gave, the act of default will mean that the company’s loan moves from its normal relationships to what is known as the “workout division”. Notwithstanding the sensitivities of the noble Baroness, Lady Kramer, the workout division is not a place for sensitive souls. It is charged, incentivised and tasked with enforcing the rights of the lender: the bank. Banking agreements have a good many pages of closely packed print, with all sorts of terms and conditions. So many times I have heard people say, “I got 1% off my interest rate and did not think about the other terms.” If your business is going to be successful because you are paying 1% less, you are in the wrong business. It is the terms and conditions that you need to look out for.
Let me give an example of how that might work. I invite noble Lords to look at their overdraft statement when they go home tonight. It will say something like this: “You will be charged 3.5% or 4% above the bank’s base rate for the time being”—what the bank’s base rate is is a good question in itself—“but for unauthorised overdrafts you will be charged 19%.” Deep in the terms and conditions for the company I am talking about, there will be a similar clause. When you default, your interest rate goes up. Do the maths. That £10 million at 19% less the 4% that you were expecting to pay—making 15%—equals £1.5 million a year, or £30,000 a week. These are the sorts of things, and there are many other ways in which banks can enforce their conditions.
Lord Kerslake (CB) [V]
My Lords, I was pleased to add my name to Amendment 75 and congratulate the noble Lord, Lord Stevenson of Balmacara, on proposing it.
The Bill contains some important benefits for companies that get into difficulties, which will help them, help the economy and protect jobs. Insolvent companies or companies that are likely to become insolvent can obtain a 20 business day moratorium period that will allow viable businesses time to restructure or seek new investment free from creditor action.
A good company—sadly, good companies will be affected by the economic impact of Covid-19—would keep its workforce well informed and consult them as a matter of routine. However, we know that, in a period of duress, the employees are often at the back of the queue in finding out what is happening in their own company, even though they are likely to be significantly at risk—perhaps the most at risk—of redundancy, changes in terms and conditions or changes in pension as a consequence of subsequent restructuring, or indeed closure if no resolution can be found.
In these circumstances, the provision in this amendment will provide an important safeguard and reduce the risk of employees being left out of vital decisions and discussions that will affect their livelihoods. I really hope that the Government can see their way to supporting this amendment, or something very close to it.
Baroness Bryan of Partick (Lab) [V]
My Lords, I too speak in support of Amendment 75. Although it is much weaker than the original amendments, it touches on an important debate that is happening not just in the UK but in most of the developed capitalist countries about the status of employees in a company.
Nearly 30 years ago, two academics wrote a paper entitled “The End of History for Corporate Law”. As often happens with such pronouncements, they were premature. The authors assumed that shareholder capitalism was unchallengeable. It is now common to hear senior executives and influential economists extol the importance of moving towards stakeholder capitalism. The chief executive of Black Rock, Larry Fink, wrote recently about climate change but said that sharing data should go
“beyond climate to questions around how each company serves its full set of stakeholders, such as the diversity of its workforce”.
The Financial Times reported that a business round table of 151 US chief executives has revised its concept of “purpose of corporation”. They have renounced shareholder value and would instead lead their companies to the benefit of all stakeholders—customers, suppliers, employees and communities. Mark Carney wrote recently in the Economist that companies would be judged on how they treated employees, suppliers and customers, by who shared and who hoarded, and that the corona crisis was
“a test of stakeholder capitalism.”
He might have had in mind companies such as easyJet, which has sought state aid after cancelling most of its flights but went ahead with a £174 million dividend payout while asking employees to take unpaid leave and face substantial changes to their terms and conditions.
This amendment should be knocking at an open door. I am sure that noble Lords will want to accept it, and that what it calls for will become common practice before too long. It is a modest proposal that does no more than require a company to consult the representatives of its employees. I am sure that many of us would want to go further than that, and no doubt this is an issue that we will return to over the coming months and years.
Lord Hendy (Lab) [V]
My Lords, I too shall speak to Amendment 75. In precisely one week’s time, we will celebrate the 70th anniversary of the ratification by the United Kingdom on 30 June 1950 of Convention No. 98 of the International Labour Organization, one of the two most fundamental conventions in international labour law. It has not only been expressly ratified by 167 nations but is considered part of customary international law. Article 4 reads as follows:
“Measures appropriate to national conditions shall be taken, where necessary, to encourage and promote the full development and utilisation of machinery for voluntary negotiation between employers or employers’ organisations and workers’ organisations, with a view to the regulation of terms and conditions of employment by means of collective agreements.”
Another anniversary will be commemorated on 11 July, for on that day in 1962, as a member of the Council of Europe, the United Kingdom ratified Article 6 of the 1961 European Social Charter. The article reads:
“With a view to ensuring the effective exercise of the right to bargain collectively, the Contracting Parties undertake … to promote joint consultation between workers and employers … to promote, where necessary and appropriate, machinery for voluntary negotiations between employers or employers’ organisations and workers’ organisations, with a view to the regulation of terms and conditions of employment by means of collective agreements”.
This amendment does not seek the fulfilment of the Government’s obligation to promote collective bargaining on the consequences for workers in a company that is running into financial difficulties and the measures such as a moratorium to alleviate them, but it does require the fulfilment of the more modest obligation to promote consultation between workers and employers about such consequences. It is difficult to the point of impossibility to see what objection there could be to the imposition on directors of an obligation to hear from their workers—in this case their employees—their perceptions of and suggestions for ameliorating the company’s situation. Under the Companies Act, directors already have an obligation to take into account the interests of the employees, so it is really not asking much to require them to ask their employees to express their views.
Given that the biggest impact of the moratoria and other measures relating to a company’s financial difficulties will be on the workers whose livelihoods are on the line, why not hear their voices? They will be the most ardent and innovative in finding ways of keeping the company alive. Certainly, the Minister and his team have offered no objection to the principle or the practicality of this so far. All that has been said is that employees are already protected and that the courts have a duty to ensure that arrangements are fair and equitable.
The first point is hopeless. There is no extant legal obligation to hear the voices of workers, no obligation to bargain collectively, no obligation to consult save where collective redundancy procedures apply, and no requirement to have worker directors on the board. The second point is equally without merit. There is no provision for workers to be parties to, to be represented, or even to be heard in the specific court proceedings to which this Bill relates. Without hearing from representatives of the workers in respect of the measures being proposed, how can the court be satisfied that any measure is fair and equitable to them? I urge the Government to accept the amendment and to fulfil at least partly their international legal obligations.
Lord Hain (Lab) [V]
My Lords, following the excellent speeches of my noble friends Lord Hendy, Lady Bryan and Lord Kerslake, I wish to support Amendment 75.
There was a moment during the response of the Minister, the noble Lord, Lord Callanan, in Committee to various amendments aimed at protecting the interests of a company’s workforce in the moratorium process when I was reminded of the Hatton Garden safe deposit robbery in 2015, the biggest burglary in British legal history. The conspirators in that crime called carving up the proceeds “the slaughter”. One of the gang nearly missed out on the slaughter. He had bailed out after the first attempt to break in because he did not want to risk returning to the scene of the crime. Some of his co-conspirators felt that he had thereby forfeited any share of the proceeds. Fortunately for him, there was honour among thieves, and they relented and gave him a cut.
The Minister argued that workers are already well protected and that consulting employees or their representatives in the moratorium process is unnecessary because the aim of the Bill is to keep companies in business. In his view, consulting employees would risk publicising a firm’s problems before it could be protected from creditor action, leading to more company failures—in short, that the workers should know their place, run along and let their betters deal with the problem. If he had patted them on the head, I would not have been surprised. Surely there should be a less patronising attitude to people who may have invested much of their working lives in a company that is now facing financial distress.
For workers, insolvency puts more than just their jobs in jeopardy. They may have back pay at risk. Their pension rights may be in danger. Their redundancy rights may be under threat and their tax and national insurance responsibilities may be in doubt. Indeed, the company may even have defaulted on payments to HMRC already deducted from their pay. Their employer may be defaulting on its equal pay and equal rights obligations.
Workers have a vital interest in the insolvency process. They deserve a voice in the consultation process and surely the Government cannot deny that; otherwise, they will be left where they are now—on the outside, at the end of a long tail of unsecured creditors, unrecognised, unheard and unwelcome, while the professional insolvency practitioners practise their black arts. Britain’s workers deserve better, and that is the purpose of Amendment 75.
The amendment is very modest, simply requiring companies to consult their workforces. It imposes no vetoes by employees on the moratorium process and specifies no hurdles that have to be surmounted; instead, it simply imposes an obligation to consult. Surely the Government must agree to that principle or, alternatively, endorse an attitude that says in effect that company owners’ rights matter, creditor and debtor rights matter but employee rights do not. I urge the Minister—and, if not, then your Lordship’s House—to support Amendment 75 or, alternatively, as I now understand he might do, at least to give some proper guarantees that employees will not be left in the lurch.
Lord Bourne of Aberystwyth (Con) [V]
My Lords, I refer noble Lords to my interests as listed in the register and the published declarations therein.
I want to speak to Amendment 1, proposed by the noble and learned Lord, Lord Hope of Craighead, which relates to the directors supplying a list of creditors to the monitor. I supported this amendment in Committee. I have had the advantage of seeing the letter, shared with me by the noble and learned Lord, Lord Hope, and can see that my noble friend the Minister has gone some considerable way to allaying concerns by setting out proposals about inquiries that the monitor must make and the policing of the whole procedure by the Insolvency Service. I thank him very much for that. I think that that will be effective, and the letter was indeed very helpful. Like the noble and learned Lord, Lord Hope, I hope that it is shared with other noble Lords by placing a copy of it in the Library.
Perhaps I may touch briefly on something else that I spoke about in Committee. I voiced concern at the lack of any express provision in the Bill requiring the monitor to be independent of the company. The monitor is an officer of the court and is required to be a qualified person, defined as an “insolvency practitioner”. That is reassuring up to a point but there is no express condition that the monitor should be independent of the directors of the company who appoint the monitor; nor is there any provision in the legislation for challenge of an appointment. Perhaps the Minister can put on the record today, or in a letter subsequently, how he sees the professional bodies policing the independence requirement, in the same helpful way as he wrote to the noble and learned Lord, Lord Hope of Craighead, on the inquiries relating to the requirement for the listing of assets and liabilities.
Subject to that, I very much welcome the moves that the Government have made between Committee and Report. They have gone some considerable way to allaying concerns expressed in Committee.
Lord Palmer of Childs Hill (LD) [V]
My Lords, this Bill, when enacted, will be the guide—even the bible—of the monitor. I agree with Amendment 14 and shall speak on it very briefly. My noble friends Lady Bowles and Lady Kramer have explained in detail the reasons for supporting and promoting the amendment, which, to remind noble Lords, would place a restriction on enforcement and legal proceeding, stating that banks and other financial creditors must not have an advantage.
My concern goes back to the philosopher Thucydides, who said something along the lines of “Words change their meaning”. What are “financial creditors”? What is “not having an advantage”? Sometimes the meaning is in the eye of the beholder or in the minute printing of the 240 pages of the Bill.
If Amendment 14 is agreed, as I hope it will be, I shall welcome the Minister’s assurance, at least for the record, that HMRC’s VAT debt, about which I spoke at least twice in earlier proceedings, will not be viewed as the debt of a financial creditor seeking yet more preferential terms. The Finance Bill 2019-21, which we have put aside and hardly mentioned during these debates, seeks to give preference to HMRC for VAT. This undermines the whole principle of this legislation, which I believe is, as the noble Lord, Lord Hodgson, said, based on the idea that “We are all in it together”. If, even unintentionally, the banks or HMRC are given preference in the Finance Bill 2019-21, we will not all be in it together; some will be more equal than others.
Baroness McIntosh of Pickering (Con) [V]
My Lords, I support the sentiments expressed by the noble and learned Lord, Lord Hope, in moving his Amendment 1, and I thank the Minister for his letter, which has been shared with us.
The duty of the monitor to notify creditors extends only to those creditors of whom the monitor is aware. What is welcome about Amendment 1 is the fact that it strengthens that. At the moment, there is no express duty to seek information about creditors from the company, and I feel that there is a very strong need for Amendment 1 to enable the monitor to do their work, given the time constraints regarding the moratorium under which they are working.
I was pleased to support the amendment in Committee. I noticed that in the Minister’s reply setting out why, in his view, Amendment 1 is not necessary, he regrets that he did not have time to respond fully to the points made in Committee. That raises a broader point about parliamentary scrutiny. I hope that the normal channels will take note of this and that we allocate sufficient time to ensure full and proper scrutiny of a major piece of company law, albeit that for the most part it is time barred. It takes longer to correct a bad law than to make a good law in the first place.
If we do not adopt Amendment 1 today, I believe that that will make the monitor’s position more difficult and that the position of creditors will remain very weak. I support the remarks of my noble friend Lord Bourne. In Committee I made similar points about the desirability of enhancing the independence of the monitor and there is no need to rehearse them today, but I stand by those comments.
Finally, I turn to the Minister’s explanatory statement on government Amendment 3. Generally, I welcome the government amendments, which are preferable to the original Henry VIII clauses, although I am mindful of the remarks of my noble friends Lord Leigh and Lord Trenchard in this regard. However, I question the Minister’s justification of Amendment 3, which would leave out the definition of “the relevant documents” and replace it with the words
“adding to the list of documents”.
The statement says:
“The power could subsequently be re-exercised so as to remove anything added.”
That seems slightly peculiar, and I would welcome the Minister explaining it in more detail when he replies to this debate.
Lord Adonis (Lab) [V]
My Lords, after an hour and five minutes of debate, I do not think that there is much more that needs to be said in favour of these amendments. We have heard a succession of powerful speeches. As the noble Lord, Lord Hodgson of Astley Abbotts, said, the speech that matters now is the Minister’s. We need to know why he believes that the amendments are not necessary, as I understand he is likely to say in respect of a number of them, and we might then come back on that, either now or at Third Reading.
I strongly support Amendment 75. I do not think that in practice it would make much difference, as it would simply introduce a right to be consulted. As my noble friend Lord Hendy said, it does not have any of the stronger elements of a requirement to negotiate or to take account of views—points that have been debated—although it is obviously a step in the right direction. However, the really powerful amendment is Amendment 14, and we look forward to the Minister’s response to it. It would, as many noble Lords have said, make it categorically and explicitly clear that the banks and other financial creditors may not seek to accelerate payment.
The Minister’s response here will be crucial. The noble Baroness, Lady Bowles of Berkhamsted, has told us that the Minister said when she met him that the Government expected that banks would behave reasonably and would not seek to enforce repayment requirements unreasonably, whereas a succession of speakers, particularly the noble Lord, Lord Hodgson, and the noble Baroness, Lady Bowles, have made it clear that it is standard practice for them to take every opportunity they can to accelerate payments and that they will do so if the Bill is enacted without Amendment 14.
So the House will want to listen carefully to what the Minister says in response to Amendment 14. If his argument is that it is his expectation that banks will not seek to accelerate payment, what grounds can he offer to the House to support that view when we have been given such strong views to the contrary?
Lord Holmes of Richmond (Non-Afl) [V]
My Lords, I am pleased to address the amendments in this group, not least the seven in the names of the noble Lord, Lord Leigh of Hurley, and the noble Viscount, Lord Trenchard. I have not had the benefit of seeing the now-famous letter, but I look forward to considering that in due course.
As the noble Lord, Lord Hodgson of Astley Abbotts, quite properly put it, this is detailed and technical law, but it is rooted in the purpose of protecting people. Similarly, the noble Lord, Lord Palmer, rightly highlighted the importance of meaning and how it changes and can be in the eye of the beholder. More significantly, I will say that everything that we have discussed today is to do with businesses which find themselves in the eye of the storm.
I cannot match the 40 years that the noble Viscount, Lord Trenchard, has spent in this field, but I knocked out just over a decade in it and, like the noble Baroness, Lady Kramer, I was involved with a number of chapter 11, US-side insolvencies, as well as a number of pre-packs on this side of the Atlantic. I ask my noble friend the Minister: why the coolness towards pre-packs? Like all vehicles, they have their annoying whines and dodgy brake lines from time to time, but overall they were pretty successful, as conceived in the original legislation.
Does my noble friend agree that a lot of the difficulty around this Bill and the amendments we are discussing in this group seems to come down to an understanding of the fundamental difference between the company and the business? It seems that much of this legislation has been constructed with the approach of a company staying in business rather than the reality that the business does not need to stay within the company. Can my noble friend assure the House that nothing as currently drafted will impact businesses which find themselves, largely as a result of the Covid pandemic, in distressing situations? If he cannot give that assurance, does he agree that it is prudent to consider a number of these amendments in this group and subsequent groups?
Similarly, on furlough finance, which was incredibly speedily and effectively rolled out by the Chancellor, does the Minister agree that, if we fail to get this legislation right and the clauses amended as proposed, we will fail to gain the wider benefits from the furlough finance and employees who have rightly benefited from furloughing will find themselves with no business at the end of that period?
Finally, does my noble friend agree that there is a real, clear and present danger that, if we do not address the amendments, the reality may be that we save the company, lose the business, fail the purpose and miss the point?
Lord Fox (LD)
My Lords, we have heard a number of your Lordships speak with great authority, not least the previous speaker, on this important subject. As the noble and learned Lord, Lord Hope, set out, there is a great number of amendments in this group, and I shall not attempt to speak to all of them. I have sympathy with the spirit of the amendments set out by the noble Lord, Lord Leigh. Like the noble Viscount, Lord Trenchard, I shall listen to the Minister’s response to those questions.
I also thank the Minister and the departmental team for listening to what was said in Committee and coming up with the first of a set of government amendments that were sensitive to that debate. However, I shall speak to two amendments in this group that carry my name, Amendments 14 and 75. Amendment 14 has been elegantly spoken to by my noble friends Lady Bowles, Lady Kramer and Lord Palmer and, on the Bench opposite, by the noble Lord, Lord Hodgson, and others. It sets out the overriding issue in this debate: that of tiptoeing around the financial institutions.
My noble friend Lady Bowles set it out with great clarity: where all other groups within the company in a moratorium have to set aside and go into stasis, the banks do not. Even though it may be implied, it is important that the Bill is very clear that we expect a standstill. The noble Lord, Lord Hodgson, said that the Minister may yet star in legal disputes of the Pepper v Hart variety. One way for him to avoid such notoriety would be to accept Amendment 14 and accept that we need a clear undertaking that this behaviour cannot be allowed. As my noble friend Lady Kramer and the noble Lord, Lord Hodgson, set out, if it can happen, it will happen. Teams within banks will be under an obligation to their owners to do it. Therefore, it needs to be set aside.
A number of Peers talked about banks gaming the situation, but this is no game for employees or for creditors. If it were a game, the pawns could well be the employees. That is why Amendment 75, which also carries my name, is important—albeit modest, as the noble Baroness, Lady Bryan, said.
The noble Lord, Lord Hendy, set out in legal terms why some status for employees needs to be established; nothing else in the Bill does that. However, it should be more than workers just being in receipt of communication; they should have a seat at the table and be consulted. Somewhere there is a feeling coming through this that involving the employees is somehow anathema to saving the business. I should declare my interests, one of which is that I am a member of the German-British Forum. In Germany, this discussion would not be needed. Businesses in Germany know that workers have a central role in their strategic future —and what could be more strategic than the sort of things that we are discussing today? So Amendment 75 is a very modest suggestion, and any watering down of it by the Government would be disappointing.
Lord Stevenson of Balmacara (Lab) [V]
My Lords, this has been a very good debate and I thank all those who have contributed. In a sense, the debate around this group of amendments reflects the problem that we have had with the Bill. The Government, rightly, want to progress and to press ahead, but the issues that we are covering are of such substance that they vastly outstrip the time that has been made available for us to do it—hence our needing the Minister to address at the Dispatch Box a wide range of points before many of us can decide how we will deal with our amendments.
The noble and learned Lord, Lord Hope, and the noble Baroness, Lady McIntosh of Pickering, asked about the exchange of letters over the simple question about whether a list of creditors should be provided. The noble Lord, Lord Leigh, and the noble Viscount, Lord Trenchard, asked a justifiable question about whether rescuing a business is the same as rescuing the company, given that in many cases the business is the important issue, particularly when it is linked to the jobs that would be involved. Does the Bill adequately deal with that?
My noble friends Lady Drake and Lady Warwick want to know from the Minister directly at the Dispatch Box whether Amendment 80 goes far enough to recognise the gaming and perverse behaviours that will inevitably follow the moratorium arrangements. In addition to that, my noble friend Lady Warwick specifically asked about the issue of super-priority for financial funds in relation to defined-benefit pensions. Will the Government, with their power, stay alert to the dangers? We need to know.
The noble Baroness, Lady Bowles, made a persuasive case about the way in which the breathing space set up by the moratorium would effectively be destroyed by accelerated payments, and the following speaker, the noble Baroness, Lady Kramer, made that point exactly by explaining why gaming is natural, or even appropriate, behaviour for banks and other lenders, which of course have to maximise the return they are likely to get. If that is inevitable, are the measures in the Bill sufficient? Will the Minister do what he can to reassure us about that? And the noble Lord, Lord Hodgson, whose extensive experience and anecdotes flowed through his speech, rightly raised the Pepper v Hart concern and the issues that will come through in future legislation in relation to what has been said today.
I suppose what I am getting at is that it would have been better if we had had proper amendments and time to debate them in individual groups—not all clumped together in different areas—and did not have to rely on the Minister’s very difficult task of covering all the points raised in today’s hour and a quarter of debate and being convincing about how the words that appear in the Bill, and in the Act when it is published, will be sufficient. However, we are where we are and we need to make progress.
Amendment 75 may be a rather modest issue, as has been said, but it is important in itself as well as for what it might say about the future. I thank the noble Lords, Lord Kerslake and Lord Fox, and the noble Baroness, Lady Altmann, for supporting me in this amendment, and I thank my noble friends Lady Bryan of Partick, Lord Hendy, Lord Hain, Lord Adonis and others for speaking in support. At heart, the amendment seeks to recognise that workers in a company care about its future and, like all other stakeholders, should be informed about what is going on. It supports the view that in a crisis situation all those who work in a company are in it together, and employees may have as much at stake as others who have a financial stake in the company. It also makes the point that those who work in the company in the round, or in the business that the company is carrying out, can and should make a contribution to save it if it is in crisis. Only good can come from a proper process of engagement, information exchange and an exchange of ideas.
I recognise that in a moratorium situation speed may be of the essence. Any arrangements set up that would slow that down also carry the risk that information will be fed out into the public, and that may promote creditor action. We must guard against that but, on the other hand, we should also aim to bring everyone together, not to split off certain groups who, as I hope to argue, could contribute. However, and I wait to hear the Minister deal with this issue when he comes to the Dispatch Box, there may be other ways of dealing with this—measures that could perhaps take into account evidence gained as we go forward. As we discovered in Committee, there may indeed be other issues that need to be wrapped into this first step—the beginnings, perhaps, of a movement to rebalance the relationship between employers and employees and to promote collective bargaining. This may not have been the right amendment or even the right Bill for that approach, but maybe this can be the first step on that journey.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, I thank everyone who has contributed to this excellent debate. The noble Lord, Lord Stevenson, correctly characterised this as a number of different subjects loosely grouped together under the heading of moratorium provisions, and I gladly accept his challenge to try to satisfy the House and deal with all the points that have been raised.
First, to start at the beginning, Amendment 1 was moved by the noble and learned Lord, Lord Hope of Craighead. I thank him for his letter following Committee; as I conveyed in my response to him, I confirm that a copy of that has been placed in the House Library. I agree with him that the monitor needs the details of the company’s creditors at an early stage to enable the monitor to comply with their duty to notify the creditors. I also confirm to him that I agree with the explanation that he provided in his speech. We have recently published draft guidance for monitors that would include that the proposed monitor is expected to ascertain the assets, liabilities and ongoing financial commitments of the company when judging its likelihood of rescue, and that would of course include details of creditors.
I turn to the amendments tabled by my noble friends Lord Leigh of Hurley and Lord Trenchard. I thank them for raising these issues and tabling the amendments, which I know derive from their enormous experience in this area. I wrote to my noble friend Lord Leigh on 17 June. I hope he received a copy of that letter; if he did not, I apologise and will gladly give him another copy. The amendments seek to expand the focus of the moratorium from the rescue of the company to the rescue of the company’s businesses or parts of that business. I am grateful to them, particularly my noble friend Lord Leigh, for taking the time to meet me and officials to discuss that with his various restructuring experts and for them to highlight their concerns to us. In response to my noble friend Lord Trenchard, the moratorium is intended as a company rescue procedure upstream of a formal insolvency procedure. If a pre-pack is the settled intention of the company and its adviser, the moratorium is clearly not for them.
It has long been the Government’s policy that the new moratorium be built around a company in financial difficulty—that is, companies having access to a breathing space before such time as the company itself is beyond rescue. For that reason, the statements made by the monitor on entry to the moratorium and, similarly, the requirements at extension and termination of the moratorium are indeed focused on the rescue of the corporate vehicle. This policy was widely consulted on and received significant support. However, I recognise the point made by my noble friends that the amendment is supported by some rescue professionals working in that field. Still, I reassure them today by telling them that we will be monitoring the operation of the moratorium closely once the Bill comes into force, and we will not hesitate to take action if that is required.
I turn to Amendments 13 and 14, tabled by the noble Baronesses, Lady Drake and Lady Bowles, which seek to change how financial services debts are treated in a moratorium. This is a complicated area so I hope the House will bear with me. The Government want to avoid lenders exercising their rights to accelerate their pre-moratorium debt, thereby potentially gaming the system through a moratorium. That is why amendments have been tabled in my name, and I will talk more about them later, to exclude financial services’ pre-moratorium debts from super-priority or protection from compromise where the debt has been accelerated during the relevant period. The amendments in my name do not prevent a financial services creditor exercising a termination or acceleration clause; nor do they remove the requirement that if the accelerated debt is not paid then the monitor must bring the moratorium to an end. These are important provisions that will encourage lending to companies in difficulty and support the operation and stability of financial markets. The Government want to encourage financial services firms to keep lending to companies in distress. Including debts to these firms in the payment holiday concept could disincentivise them from doing so. That could leave some companies in a moratorium without the finance that they need to recover. In other words, it could jeopardise the very purpose of the moratorium in the first place.
In addition, we have excluded certain financial services contracts from the prohibition of termination clauses. This is vital to ensure that financial markets continue to operate as they do now. To not exclude these contracts could carry wide-reaching, systemic risks to market stability, as market participants could find their transactions suddenly terminated. Legal certainty over how transactions will be treated is vital to the operation of these markets. I appreciate that many noble Lords have raised concerns about this matter, but I hope that the amendments tabled in my name will allay at least some of their concerns. I will talk in a little more detail about those amendments shortly.
The Deputy Speaker (Baroness Henig) (Lab)
I have received a request to ask a short question for elucidation from the noble Lord, Lord Fox, so I call on him to ask it.
Lord Fox
In reference to Amendment 75, the Minister talked about the danger of employees leaking the state of the business. In my experience of acquisitions and disposals in continental Europe, where the pre-briefing of employees is legally required, there has never been an issue with employees leaking the information. The leaks have only ever come from advisers, usually banks. What grounds does the Minister have for making that statement?
Lord Callanan
I do not think that I used the word “leaking”. We want the moratorium to be a light-touch procedure with the minimum level of bureaucracy. Of course, it goes without saying that any information being disclosed from whatever source of a company’s intention to go into this procedure could have serious adverse consequences if certain creditors seek to pre-empt the operation of the moratorium. However, we have built concessions into this part of the Bill. I hope noble Lords will be able to accept them. I take on board the noble Lord’s points, although I did not use those words.
Lord Hope of Craighead [V]
I am very grateful to those noble Lords who spoke in support of my Amendment 1. I am grateful to the Minister as well for giving me the two assurances which I sought when I introduced the amendment.
I feel that there was a note of some disappoint from some noble Lords that I would not press the amendment, so I will explain very shortly why I took that decision. The letter that was circulated—I am grateful to those responsible for doing that—sets out in some considerable detail the various points which one needs to bear in mind as background to the wording of the Bill. It does, of course, require one to give rather more weight to the guidance than what one finds in the Bill’s wording, which I said was somewhat weak, but I am prepared to accept that guidance and test the matter against the point which the Minister made in Committee that adding a burden on to the directors of the company when a company needs to enter into the procedure as quickly as possible would be undesirable if to do so would be unnecessary.
That really is the essence of the point I asked myself: am I satisfied, in view of what the Minister said in his letter, that the burden would indeed be unnecessary? In the end, the answer to that question was yes. For these reasons—and I express my gratitude again to the Minister for his helpful letter—I beg leave to withdraw the amendment.
Lord Leigh of Hurley
Lord Leigh of Hurley
My Lords, I take the assurances from the Perspex-covered Dispatch Box that the Minister will monitor the situation. I take this opportunity to apologise: I did not mean that I had not received a letter; I meant that it was not as satisfactory as the noble and learned Lord, Lord Hope, found it. There were insufficient assurances. I also suggest that the noble Lord, Lord Fox, meant bankers and PR advisers. On the basis of the Minister’s categoric assurances that he will monitor the situation and take action as necessary if it is apparent that companies are not able to be saved but businesses can, I will not move the amendment.
The Deputy Speaker
We now come to the group beginning with Amendment 3. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or any other amendment in this group to a Division should make that clear in debate.
Amendment 3
Member’s explanatory statement
This amendment narrows the Secretary of State’s power to change a list of documents, so that it is confined to adding to the list. The power could subsequently be re-exercised so as to remove anything added.
Earl Howe (Con)
My Lords, in moving Amendment 3 I will also speak to the other government amendments grouped with it. I begin by thanking my noble friend Lord Blencathra and the Delegated Powers and Regulatory Reform Committee, including the ever- helpful clerk team, for their quick work in scrutinising the Bill. As always, they have made important recommendations and the Government have sought to accept as many of them as possible. In last week’s debate, my noble friend Lord Callanan stated that we would listen to the concerns expressed and consider them carefully. We have done so.
The amendments tabled by the Government have taken on board the concerns raised by the committee and by noble Lords on the number of Henry VIII powers in Clause 1 on moratoriums. As a result, we have tabled amendments that will remove three of the Henry VIII powers in Clause 1 from the Bill: those in new Sections A10(4), A11(5) and A13(9). We have also tabled amendments that will restrict the power in new Section A6(4) so that it can be used only to add to existing requirements, rather than to amend them.
Baroness Fookes (Con) [V]
My Lords, before I speak to Amendment 48 in my name, I thank the Minister for taking on board so many of the issues raised by the Delegated Powers Committee and the Constitution Committee about the extensive use of delegated powers. I believe in giving credit where it is due and do so now.
However, I was seeking a little more in Amendment 48. This amends Clause 21, which requires the Secretary of State to keep the regulations made under Clause 18 under “constant review” and, if satisfied that they are no longer needed or proportionate to their purpose, to make new ones amending or revoking. That sounds fine at first, but what does “constant review” really mean? Who is going to do the constant reviewing—a very busy Minister with other things on his mind, or his very busy civil servants? My amendment seeks to keep them on the straight and narrow, so to speak, by suggesting that the Secretary of State should review these amendments every three months and report to Parliament. I hope that my noble friend might take this on board, but I am not holding my breath.
Baroness Taylor of Bolton (Lab) [V]
My Lords, I echo what the noble Baroness, Lady Fookes, said. She and I serve on the Constitution Committee, which raised quite a few concerns about this Bill. I want to say a few words about Clause 22. As the Minister outlined, the Government are now adding a limitation to it so that the expiry date cannot be extended beyond two years after Royal Assent. That amendment is very similar to the one that I moved in Committee. I am very pleased that the Government have acknowledged what the Constitution Committee said about the extent of the power that was being given, and I am glad that this change is being incorporated in the Bill.
Having said that, and having welcomed the changes that the Government have introduced in other areas, there are some very significant general concerns, that I and many others have, that have been highlighted by this Bill and by the extent of the government amendments that have had to come forward following Committee. Committee raised a series of genuine problems, some of which the Government have addressed, but this illustrates some of the dangers of fast-tracking legislation, even when, as the noble Lord, Lord Callanan, said, there have been previous consultations. It certainly illustrates the dangers of using emergency legislation. We all accept that emergency legislation in this area is needed because of Covid-19, but it illustrates the difficulty of using emergency legislation to make permanent changes at the same time in this very rushed way.
I ask the Minister to bear in mind that we will have other legislation coming forward. I hope that Ministers will learn the lessons of this legislation. This is a complex Bill—the previous debate showed that—and this is not really an adequate way of scrutinising such complex issues. Therefore, I hope that when we have other legislation because of Covid-19 or Brexit, the Government are mindful and give time for proper consideration of all aspects of such Bills.
Having said that, I welcome the specific change to Clause 22, and I am very pleased that the noble Lord, Lord Callanan, having said last week that he would look at this again, has produced this government amendment.
Lord Balfe (Con) [V]
My Lords, I want to say a few words in support of Amendment 48, tabled by the noble Baroness, Lady Fookes. I know from experience that when you have a requirement to report on anything without a time limit, there is always the tendency not to do it. There is always something more pressing, and even if the Minister raises it, the civil servant will say, “Well, no one has actually asked for it, Minister, and we have got this or that.” The only way to keep a piece of legislation or a policy under review is to have it timetabled. Whether it is every three months, four months or six months, the key point is that you have a timetable and you have a requirement to report at the specific point of that timetable, because then it gets into the system.
I urge the Minister, thinking not of himself but of Ministers in years to come, to accept this amendment or a close variant of it, that, crucially, puts in a time limit. A refusal today could snooker us when trying to get reports in the future, as we end up with parliamentary questions such as, “When is the Minister proposing to review?” and answers saying, “He or she is certainly thinking about it”, but not getting the review. I urge the Minister, looking to all our political futures, to accept some sort of time limitation. As such, I am very happy to support the amendment tabled by the noble Baroness.
Lord Wallace of Tankerness (LD) [V]
My Lords, my colleagues on the Constitution Committee, the noble Baronesses, Lady Taylor and Lady Fookes, have made their points very clearly, so I am very happy to rest behind their submissions.
Baroness Northover (LD) [V]
My Lords, I raised in Committee that there were numerous Henry VIII powers in the Bill, as the Delegated Powers Committee flagged in its devastating report. I am very glad that the Government have responded to the criticisms of the Delegated Powers Committee and the Constitution Committee by bringing forward these amendments, even if they are not comprehensive.
I am glad that we have been able to scrutinise the Bill in this House in a way that simply did not happen in the Commons. This Bill is indeed a mixture of emergency and permanent changes. I note particularly that the Government propose affirmative procedures in Amendments 58, 66 and 67, and “made affirmative” procedures in Amendments 68, 69, 72 and 73. The notes say that it is either affirmative or “made affirmative”—although I note what the Minister, said—in Amendment 109. I welcome these amendments. Those serving on the Constitution Committee have tabled Amendments 48 and 50, which bring more precision to this, and I hear what they have to say. Although I welcome what the Government have brought forward, I hope that the Minister can give further assurances.
Baroness Anelay of St Johns (Con) [V]
My Lords, last week in Committee I expressed my concern about the Government’s extensive use of Henry VIII powers and I was one voice among many. Today, I welcome the Government’s amendments in this group, most of which respond positively to the concerns expressed in Committee. For example, in Clause 1, Amendments 5, 8 and 11, and Amendment 76 to Schedule 1, narrow or remove the Henry VIII power. Another couple of examples of changes can be found in Amendment 69 to Clause 42 and Amendment 72 to Clause 43. They convert the negative procedure for regulations into the “made affirmative” or—as the noble Baroness, Lady Northover, has just said—affirmative procedure.
Baroness McIntosh of Pickering [V]
My Lords, I have no substantive remarks to make, other than to congratulate my noble friend Lord Howe on taking on board the comments made by the committee.
Baroness Barker (LD)
My Lords, a number of Members of your Lordships’ House may wish to claim that it was the force and power of their oratory that caused the Government to think again, but I have a sneaking suspicion that the mere prospect of the noble Baroness, Lady Fookes, leading a band of opposition rebels was enough to concentrate minds—and I am very glad that it did. There was broad consensus around the House that the powers taken within the legislation were far too broad. I am glad that the noble Earl, Lord Howe, has come back and talked in detail about those which have been ceded and those which have not.
Towards the end of his remarks, the noble Earl said that the Government had retained some regulation-making powers to address the needs of different sectors, should it become apparent that regulations need to be made to save businesses in certain sectors. That is the issue to which I draw attention, following on from the remarks of the noble Baroness, Lady Anelay of St Johns. Like me, she has an interest in what happens in the charity and social enterprise sector. Welcome though the letter from the Minister was—exactly as the noble Baroness just said, it talked about charities with wholly owned subsidiary trading companies which give back their profits to the charity—a number of charities have different company forms, and there remains a lack of clarity in the Bill about some of those entities.
I am very pleased that the noble Lord, Lord Callanan, and his officials have talked to me about this. The Bill applies to those charities which are companies limited by guarantee—it is mostly community interest organisations that will fall within this—but it will not apply to charities that are unincorporated, nor to excepted charities and royal charter charities. There is also a big consideration around the extent to which the Bill will apply to community benefit societies, mutuals and co-ops. I am not asking the Minister to reiterate the detail of that today. I merely draw attention to the fact that there may be matters to which it is necessary to return when the Government make regulations under the Bill.
I signalled to the noble Lord, Lord Callanan, one of the issues that has been drawn to my attention by the museum sector. We have a number of independent museums—not the large museums set up under an Act of Parliament, nor those associated with local government—and they are typically charitable companies. They have a very big fear. If they are in danger, and a number of them currently think that they may well be, their collections immediately become part of the assets of any insolvency procedure. The big concern is that, if there is no exemption for those assets in regulations, later on this year a large part of Britain’s cultural heritage may suddenly come up in a fire sale. That would be extremely damaging, not just to those organisations but to the local economies that they support as part of the tourism sector and so on. All they are asking is that, when it comes to making regulations under the Bill, there be consultation with them and with the charity lawyers, accountants and insolvency practitioners who have expertise within what is, I know, a very niche but important part of company law.
That said, I add my support to the noble Baroness, Lady Fookes, and her Amendment 48. What she is asking for seems entirely reasonable.
Lord Holmes of Richmond [V]
I am pleased to speak in support of Amendment 48 from my noble friend Lady Fookes. As ever, she makes a point that is pertinent and clear, and that is absolutely required at this stage. In doing so, I also congratulate my noble friend Lord Blencathra and the members of the Delegated Powers Committee on all their work in this area. As other noble Lords have said, the Government are in listening mode on this. That can be only a good thing, and it is largely down to the persuasive power of my noble friend.
Baroness Neville-Rolfe (Con) [V]
My Lords, I thank my noble friend the Deputy Leader for his many amendments, designed to moderate the overuse of delegated powers in this important legislation. The legislation is vital to easing the burden of events on businesses, especially smaller or less well-capitalised businesses, of which sadly there are more every day.
I was particularly concerned about the lack of an end date for the use of the emergency powers, but government Amendment 49 appears to meet my concern. I also thank my noble friend Lady Fookes, the noble Baroness, Lady Taylor, and others for their effective scrutiny.
Lord Fox
My Lords, this will be something of a novelty but I am going to be gracious. As is appropriate, I congratulate the Government on bringing forth Amendment 49, as did the noble Baroness, Lady Neville-Rolfe, and on sweeping away as many as possible of the Henry VIII clauses, as they are known. My noble friend Lady Barker set out the challenge for this Bill and the reasons for retaining some powers to change and mutate it as it goes forward. Because of the haste and scale of the Bill, there is a great challenge from non-conventional businesses, so to speak.
The point about museums is a very good example of where it is a question not just of the future of the museum but the future integrity of a collection, which suddenly becomes an asset. While it may not be possible to save a museum, it should be possible to save a collection—but, when very many collections are going up for sale at the same time, clearly the capacity to deal with that is eliminated; that is just one very niche example of the challenge for the Government. In this set of amendments, the Government have shown an ear to the debate and have reacted accordingly.
Lord Stevenson of Balmacara [V]
My Lords, as has already been said, this has been a good debate. While we must await the individual amendments, I think the judgment of the House so far is that the Government have changed their original proposals sufficiently to satisfy the House and, more importantly, the specialist committees that have been looking at particular details; we picked up from my noble friend Lady Taylor the considerable concerns that were around at the time.
The noble Earl, who is also the Deputy Leader of the House, might wish to swap hats when he comes to respond to the debate, as there are perhaps points that need to be taken back and listened to within the usual channels in relation to the dangers of fast-tracking complex legislation of this nature and the need to make sure that we have sufficient time and learn the lessons, as my noble friend Lady Taylor said. It is not something that we often hear in this House, but we do need to listen: this whole process of fast-tracking and then trying to pick up on the run the difficulties that come up and is really not an adequate way of scrutinising, as she put it. We hope that that lesson will be learned in a way that will allow us more time and more consideration.
Finally, I thank the noble Baroness, Lady Anelay of St Johns, for picking up the point that we both shared in Committee in relation to charities. Like her, I am pleased that the point has been noted and a response issued. I still think that there are concerns around some of the other bodies with which we as a Parliament and as a society should be concerned: the good work of credit unions, friendly societies, social enterprise companies, community-interest companies and co-ops. These, of course, share the common thread that they are often set up outside the norms of company law, for the reason that they can operate better when they are not part of the overall character of the Companies Act. But, inevitably, there are intersection points and issues, which have been picked up. The point made by the noble Baroness, Lady Barker, that certain independent companies trading as museums might find that the collections on which they depend may be at risk is obviously a worry that the Government will want to take back. I think those are the important points.
Earl Howe
My Lords, I thank my noble friend Lady Fookes and the noble Baroness, Lady Taylor, for the amendments which they have tabled, and I am grateful to all noble Lords who have spoken in this short debate. I will say at the outset that I understand and take on board the concerns expressed by the noble Baroness, Lady Taylor, and the noble Lord, Lord Stevenson, on the use of emergency legislation and the risk that amendments to such Bills will be necessary.
I can assure the House that the Government do our very best to draft legislation accurately and fully before bringing a Bill before the House. However, I feel sure that noble Lords will understand that there will always be a risk of amendments being required to the Bill as it progresses through Parliament, even with the best will in the world. To the extent that the Government have listened to concerns expressed during the course of the Bill, I am sure that noble Lords would not wish to criticise amendments that have come forward in response to such concerns.
Lord Callanan
“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by section 126 of the Pensions Act 2004, the Board of the Pension Protection Fund.”Member’s explanatory statement
This amendment extends the monitor’s duty to give notice that a moratorium has come into force.
The Deputy Speaker
I remind noble Lords that Members other than the mover of an amendment and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or any other amendment in the group to a Division should make that clear in the debate.
Lord Callanan
My Lords, the amendments in my name make provisions relating to pension schemes in the moratorium and the restructuring plan. Although the moratorium is not an opportunity for employers to walk away from their liabilities, it may become the point at which preparations for and discussions about a restructuring proposal begin. Where the pension scheme would be a large unsecured creditor in any insolvency, should the employer ultimately fail, restructurings can have a significant and immediate impact on the expected outcome of the scheme.
There is the possibility that the company may seek to reschedule payments to provide working capital to give time to shore up its operations. This might result in lower payments to the scheme for a period of time. A rescue may also involve certain other creditors, such as new lenders providing rescue finance, taking security over company assets. This would mean that there would be less available for other creditors, including the scheme, in the event that any such rescue ultimately failed.
Some insolvency procedures are designated as “insolvency events” under existing pensions legislation. One effect of such designation is that the Pension Protection Fund has a statutory role to play, acting as a creditor in place of the trustees of eligible schemes. However, the new procedures are different. They are not qualifying insolvency events, as they are focused entirely on giving the company every opportunity to achieve a rescue as a going concern. This would be the best outcome for a pension scheme: moving forward with the support of its newly rescued sponsoring employer.
Nevertheless, there is concern that these procedures could result in the pension scheme being disadvantaged as an unsecured creditor of the company. The PPF, as the provider of protection for members of eligible schemes in specified circumstances, could potentially face a greater loss. An example of this would be if the company subsequently fails and the scheme falls into the PPF with a larger deficit than it originally had.
Consequently, it is agreed that there is a need to build in specific protections. These focus on the interests of the scheme and its members, and the interests of the PPF and its levy payers. This would be by ensuring that the PPF has a seat at the table in any restructuring proposal and that its voice is heard. After all, it is the statutory compensation scheme for members of eligible defined benefit schemes, and ultimately bears the risk for the scheme should the company subsequently fail.
The challenge has therefore been to strike the right balance between the interests of the trustees, the board of the Pension Protection Fund, the company and its creditors. Taken together, these amendments achieve this balance. They provide for both the PPF and the Pensions Regulator to get appropriate information in the case of both a moratorium and a restructuring plan. The regulation-making power will allow the Secretary of State to provide for the board of the PPF to act in the place of the trustees of the scheme as a creditor in certain circumstances. The board of the PPF and the Pensions Regulator will have the right to the same information as creditors, concerning the start and end point of a moratorium and any change in the monitor, in specified circumstances. The board of the PPF will have the same rights as trustees to challenge in court the monitor’s or director’s actions in specified situations where the interests of the trustees as a creditor are considered to be unfairly harmed by those actions.
Where a restructuring plan is proposed and the company is a sponsoring employer, provision is made for the board of the PPF and the Pensions Regulator to receive the same information sent to creditors, in specified circumstances. This means that they are informed that a proposal has been made and they can then consider what action, if any, to take.
In respect of both the moratorium and the restructuring plan, where the trustees of a PPF-eligible scheme are a creditor of the company concerned, the proposed amendments provide a regulation-making power. This power will give the board of the PPF the ability to exercise the creditor rights of the trustees; again, in appropriate circumstances. These rights include attending the creditors’ meeting, voting on the restructuring plan and making representations to the court. The powers are drafted to allow an appropriate balance between the trustees and the Pension Protection Fund’s interests by allowing creditor rights to be exercised concurrently where appropriate. Conditions can also be placed on the exercise of any rights given to the board of the PPF.
Restructuring will always involve trade-offs. Employees will be concerned that the rescue ensures that their jobs are secure, but at the same time they will be interested in the impact on the company pension scheme if they are a member. The changes tabled in my name have balanced the interests of employees and scheme members with those of a company and its creditors, giving them all the best chance for survival, in our view. I beg to move.
Baroness Bowles of Berkhamsted [V]
My Lords, I welcome the amendments tabled by the Government to address the position of the Pension Protection Fund and the Pensions Regulator where there is a relevant scheme. The amendments give them the right to be notified of moratorium events and give the Pension Protection Fund rights to challenge the monitor or directors, vote as a creditor and make representations to the court.
An amendment on the issue that remains unaddressed was originally tabled in Committee by the noble Baroness, Lady Altmann; we have tabled one on Report with her support. The noble Baroness, with her great experience in pensions, will speak next.
Amendment 15 concerns the status of pledged assets and whether the court can give permission for their disposal without the Pension Protection Fund’s permission. In the absence of an amendment, those assets are not protected, which unravels the basis on which settlements over funding and deficits are made with trustees.
The effect of that is twofold: the actual disposal of the assets, which may be unfavourable to the pension scheme; and, even without any of that happening, the fact that such a possibility exists raises doubts about the numerous pledges that underpin contribution agreements. It is far from desirable to have to revisit them but, without any assurance, it would seem necessary for trustees to think about that and seek more cash funding. That would be bad at any time, but when companies are facing more difficult times due to the pandemic and its after-effects, it would be particularly unwelcome. That is the reasoning behind the amendment, and I know that other noble Lords are well able to illustrate the problem further.
Baroness Altmann [V]
My Lords, I echo the words of the noble Baroness, Lady Bowles. I welcome the recognition by the Government in the amendments laid by the Minister of the importance of ensuring that a company pension scheme is not disadvantaged and that the Pensions Regulator and the Pension Protection Fund are given rights in circumstances where there is a moratorium or negotiations regarding saving the ongoing business.
As the noble Baroness said, Amendment 15 provides the sort of reassurance that not only a pension scheme and its trustees might need but that the entire defined benefit pension system might require should there be the sort of emergency problems that we are passing this legislation to cope with. The assets of a company are sometimes pledged to a pension scheme in order to reduce the amount of cash that the sponsor needs to pay into the scheme. The types of these so-called contingent assets that we are concerned about in this amendment are Type B(ii) and Type B(iii). Type B(ii) are rights over real estate owned by the company and Type B(iii) are securities that have been pledged to the pension scheme. The scheme’s funding will have been based on following significant negotiations over the years to fix funding shortfalls.
What has happened recently gives rise to enormous concern. In 2007, schemes in deficit had a total deficit of around £20 billion. By 2008, that had risen to £100 billion or more. In March 2009, it was £220 billion. At the end of last year, it had fallen to around £165 billion, but the latest figures from the Pension Protection Fund show that the total deficits of schemes in deficit have now reached £290 billion. There is a major shortfall across the defined benefit pension scheme universe. After many years of trustees agreeing with sponsors to allow deficit repair payments, I have significant concerns that these contingent assets could be at risk, given the amendments that have been laid. They give the Pension Protection Fund and the regulator the right to be notified and to participate in such negotiations, but if that will require court challenges rather than being ruled out without Pension Protection Fund permission, there is an ongoing risk that such assets could be approved for sale by the court. That would not only materially weaken the pension fund itself but, should the company then fail, the PPF will have many fewer assets than is currently assumed by its levy calculation. The system itself could then be at risk.
Scheme funding has been agreed over many years. In light of the other measures in this Bill, which could see bank lenders and even intracompany loans accelerate ahead of the pension scheme in an insolvency, there is likely to be a material weakening of DB scheme funding and potential recoveries on insolvency. Therefore, I am concerned that all other DB schemes and their members will be at risk and that the PPF lifeboat may not be secure in the way we currently believe that it is. I wonder whether the Minister might be able to confirm that the Pension Protection Fund will have the necessary powers to prevent the courts selling assets, should that be under consideration. Without that power, it may be too late once those assets have been sold. I agree with my noble friend that these measures improve the situation, but just allowing the PPF and the Pensions Regulator to have appropriate information, the same as other creditors, and the ability to challenge in court in certain circumstances leaves a question mark in one’s mind about how secure the contingent assets pledged to a pension scheme will be after this Bill, as it is currently worded, passes.
Lord Hain [V]
My Lords, I was very happy to add my name to Amendment 15, which has been spoken to so eloquently and with unrivalled expertise and authority on this matter by the noble Baroness, Lady Altmann. I am very concerned about the threat to the Pension Protection Fund. I am proud to say that it started life under the last Labour Government in 2005, and I was subsequently Secretary of State for Work and Pensions. It is an important lifeboat, but it could be threatened if the consequences of insolvency, particularly with defined benefits, rebound into the PPF.
Although I welcome the concessions and responses that the Minister has made through these amendments, and what he has said as a result of the arguments put by the noble Baronesses, Lady Altmann and Lady Bowles, and others, including my noble friends Lady Drake and Lady Warwick, I still think there is a real risk involved. I hope that today, he will give greater recognition to that fact and that he and the Secretary of State will be vigilant in ensuring that the Government are fully cognisant of their concerns about the future viability of the vital Pension Protection Fund.
Baroness Neville-Rolfe [V]
My Lords, I come to this from a slightly different point of view, and I rise to express some concern at the scale of amendments on pensions in this already finely balanced Bill. They may make life difficult for investors, creditors and the forces of enterprise that we need if our economy is ever going to recover from the dreadful coronavirus crisis. While understanding and accepting the government amendments and agreeing on the need for vigilance— in the words of the noble Lord, Lord Hain—I urge the Minister to go no further and not to accept Amendment 15. It gives too much power to the Pension Protection Fund and could have the perverse consequences of delay, burden and cost to pension funds and to businesses that are in trouble but have a sustainable future.
Lord Balfe [V]
My Lords, I am concerned at the way in which the Pension Protection Fund is currently heading. It has been burdened with more and more liabilities. This is a direct attack on it. We need to remember that the idea of pledged assets came as an alternative to companies having to put real cash into their pension fund deficits. The PPF was prepared to accept pledged assets on the basis that they were literally a pledge that could be redeemed against the deficit. If that is going to be removed, it will mean that any responsible trustee in any company in this country—whether the company has financial problems or not—must, as soon as this legislation comes into being, review those pledges. It does not matter whether the company has any financial problems. The pension trustees will have to say to the company, “Look, this is not worth the paper it is written on. I am sorry, but you have got to turn these pledges into financial support.” The Pension Protection Fund—if it is to do its job—will have to back those trustees, because this Bill is saying that the benefit of a pledge is worthless. That is the real problem. It is not about the handful of companies that will go under; it is about the large number of companies that will float, but with trustees who will have a duty to their pensioners to secure the pension no longer being able to place any trust in a pledged asset.
I urge the Minister to accept this. There is, anyway, a grave danger that the pensions’ lifeboat is going to sink. You cannot keep on putting the costs of failure on to an ever-decreasing number of schemes. The levy itself is in somewhat of a crisis. I hope that the Minister will step back and look not just at the individual company in trouble but at the impact on the pension scheme itself and on the position of any responsible trustee and of any pensioner who will be saying to their trustees, “If you are to fulfil your legal obligation to us to secure the pension, you must renounce these assets which have been pledged on the basis on which they have been pledged and turn them into real, hard, secure money”. If we do not accept this amendment, we are in grave danger of causing ourselves yet more problems. The law of unintended consequences will sweep through the trustee world. Certainly, if I am advising or taking part in any trustee meeting, I shall be saying to trustees, “Do not accept a pledged benefit”.
Baroness Drake [V]
My Lords, the Government have tabled a number of helpful amendments in this group to address concerns raised about the impact of this Bill on the position of pension schemes, PPF and the Pensions Regulator, including access to the table, the court and the deployment of creditor rights during any moratorium or subsequent restructuring process. I thank the Minister for that.
However, I remain concerned that a PPF assessment period and a pension scheme Section 75 debt are not triggered during a moratorium or a restructuring plan. In a company voluntary arrangement, they would have been triggered when the proposal was filed with the court. This means that the PPF access to the share of the vote, exercised on behalf of the pension scheme, relates to the scheme’s full debt, giving it greater influence. In a restructuring plan, the voting rights to be exercised by the PPF would be set by the court. The Bill makes no provision as to what these should be. Given that the scheme’s full debt will not have been triggered, the most likely outcome will be reduced voting rights, reflecting a much smaller allowance for the defining of the debt. This will unquestionably put the PPF as a scheme at a disadvantage compared with other creditors such as loan providers, where the full value of their debt will be recognised, or landlords who will likely have voting rights based on the valuation of their full contract.
Lord Blunkett (Lab) [V]
My Lords, it had been my intention to speak on the final day of Committee but, because of an administrative blip, my name went in at entirely the wrong time.
I am pleased that the Government have been prepared to move on this area, as they have on other parts of this complex and detailed Bill. Like my noble friend Lord Hain, I was the Pensions Minister for a time, at the time when the Pension Protection Fund was being brought into full operation. It built on the incredible work—unsung and unknown to many people—of my good friend Andrew Smith, the previous Secretary of State for Work and Pensions. The noble Baroness, Lady Altmann, was a lobbyist at the time. I remember the withering nature of her commentary on what we were doing. I cannot ever remember the noble Baroness giving us credit for anything, but now she probably thinks that, 15 years ago, we were doing the right thing. This is why I take seriously what she has said in relation to contingent assets and their likely disposal.
Consequent to what my noble friend Lady Drake said about the Pension Schemes Bill, can the Minister say whether, with regard to the legislation that is being brought forward by the Government to protect our crucial national infrastructure from the sale of assets which would otherwise be detrimental to our economy and to the supply chain, which has arisen from the experience of the last four months, there can be an interrelationship between the different pieces of legislation? That is so that we can be clear not only about the rules that are being applied and the power that would exist for the Pension Protection Fund if this amendment is passed but about how we can ensure that one piece of legislation relates directly to and integrates with another piece of the Government’s policy. If we can get them to act together, some of the fears that have been raised can be allayed.
Lord Fox
My Lords, I am grateful to all noble Lords who have spoken in this important debate. I am a signatory to Amendment 15 and I thank my noble friend Lady Bowles, the noble Baroness, Lady Altmann, and the noble Lord, Lord Hain, for co-signing it. I join other Peers in acknowledging that the Government have moved in terms of listening to the previous debate and going forward, but the issue that Amendment 15 seeks to address is a serious one. If this Bill went through without the sorts of assurances that we are looking for from the Minister, or remained unamended, that would create a huge issue for pension trustees all over the country. Never mind the ones that are going into insolvency—as the noble Lord, Lord Balfe, set out so eloquently, every single pension trustee would revisit every single pledged asset and would go back to the management of their sponsoring companies to ask for cash instead. I do not need to remind the Minister that cash flow is one of the biggest challenges facing businesses at the moment; it is actually cash that is the problem. To knowingly put in a measure that will drain profitable businesses of cash would be careless, and I do not think that that is what the Government are doing. I think this is an unknowing consequence of the Bill.
To be clear, this concerns assets that have already been pledged. When the Minister spoke earlier, he seemed to be referring to assets being pledged at the time of insolvency, but these are assets which have been pledged in lieu of cash. Given that, I am a little bemused by the idea put forward by the noble Baroness, Lady Neville-Rolfe, that the Pension Protection Fund would somehow be overreaching itself in seeking to protect these funds for pensioners and that it would be giving the PPF too much power. Rather, it is merely the power to protect assets that have been signed over to the pension fund. If they were not assets such as those set out by the noble Baroness, Lady Altmann—real estate and securities—then it would be money. I do not think that the noble Baroness, Lady Neville-Rolfe, is proposing that the courts should have the power to extract money from pension funds, so why should they not have the power to protect against judges extracting assets that have been put aside in lieu of money?
The noble Baroness, Lady Altmann, put a clear question to the Minister, one that I think is very apposite to this point. Does the PPF have the power to prevent judges extracting pledged assets from pension funds and putting them into the pool of assets for distribution to other creditors? If the Minister is able to stand up and say that clearly and unambiguously—for those Members watching remotely, it does not look like he is—there is no problem. However, if the Bill leaves this House unamended or without that pledge, this issue will become a very serious one not just for the pension funds of distressed companies but for every defined benefit pension fund in the country.
Lord Lennie (Lab) [V]
My Lords, straight off the bat, I too welcome the Government’s movement on this specific part of this necessary Bill. There will be a sense of relief for direct benefit pension funds and their trustees, the Pension Protection Fund and the regulator. As has been said, all will now have rights of access to information about the intentions of companies and to voice their opinions about the decisions that are being contemplated; a seat at the table, access to court and so forth. This will be true throughout the UK.
When a company seeks a moratorium or when it considers other actions in a potential redundancy and insolvency circumstance, the monitor will be required to notify the pension scheme, the PPF and the regulator to have due consideration of their views about the proposed action. In the event that a moratorium comes to an end or if the monitor changes, the pension scheme trustees and the PPF must be informed. This will mean in effect that the debts owing to a direct benefit pension scheme do not rank below other finance debts. That would recognise the real status of a pension as deferred earnings and should not allow others to accelerate the debt position at the expense of pension provision, as was feared in the original text. These changes have come about due to the strength of the arguments put by my noble friends Lady Drake and Lady Warwick, the noble Baroness, Lady Bowles, on the Liberal Democrat Benches, and the noble Lord, Lord Balfe, and the noble Baroness, Lady Altmann, on the Conservative side. I congratulate them on achieving this much.
However, can the Minister provide the reassurance being sought about the value of direct benefit schemes being put at risk by the sale of assets, and ultimately the whole working of the PPF? Will he closely monitor and consult on any necessary remedial actions that may arise from his examination of this issue? The Minister can take the credit due to him for his part in bringing forward these amendments to the Bill, and they are welcome. But can he confirm that the Government will stay alert and ready to intervene on behalf of pensions and the PPF in the event that the measures in this legislation do not go far enough in protecting them?
Lord Callanan
My Lords, I take this opportunity to thank everyone who has spoken in this important debate, and I am grateful for Amendment 15 because it is a very important provision. I am also grateful to noble Lords for their continuing efforts to ensure that pensions are treated appropriately through this Bill. None the less, I hope that they will agree that we are now seeking to introduce specific and satisfactory provisions to deal with pensions’ interests.
I also take this opportunity to assure noble Lords that where charged property is disposed of, it can be done only with the permission of the court and where the court believes that it is necessary to support the rescue. Where the court is satisfied and gives its permission, the net proceeds must go towards satisfying the amounts secured by the charge before they can be used in any other way. From a practical perspective, this amendment is not necessary. If a company in a moratorium was going to court to seek permission to dispose of charged assets, it would at the least have had to have had a conversation with the person to whom those assets are charged. Well before giving clearance to the company to dispose of such assets, the court will of course take account of their views at the hearing.
In response to my noble friend Lady Altmann and the noble Lord, Lord Hain, we have been in detailed discussions with colleagues in the DWP, along with both the Pensions Regulator and the Pension Protection Fund, in the formulation of these amendments. We are seeking to ensure that the PPF is able to play a role in a company’s rescue plan where it is appropriate for it to do so. Let me also provide the assurance that the noble Lord, Lord Lennie, was looking for. Of course, we will continue to monitor these arrangements to ensure that they act in the fairest possible way for all the different stakeholders in the process that I referred to earlier.
On that basis, I hope that I have been able to provide sufficient reassurance to noble Lords and that they will feel able to not move their amendments when the time comes. I beg to move.
Lord Callanan
Member’s explanatory statement
This amendment removes a Henry VIII power to change a list of documents.
Lord Callanan
Member’s explanatory statement
This amendment removes a Henry VIII power to change a list of documents.
Lord Callanan
Member’s explanatory statement
This amendment removes a Henry VIII power to change a list of documents.
“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by section 126 of the Pensions Act 2004, the Board of the Pension Protection Fund.”Member’s explanatory statement
This amendment extends the monitor’s duties to give notice where a moratorium is extended or comes to an end.
“(f) banks and other financial creditors may not seek to accelerate payment.”
Baroness Bowles of Berkhamsted [V]
I thank noble Lords who signed the amendment and spoke in support. The noble Lords, Lord Hodgson and Lord Holmes, and my noble friend Lady Kramer all spoke from experience about how banks will behave to extract cash. The noble Lord, Lord Adonis, asked what grounds the Government had for thinking banks could be constrained. The noble Baronesses, Lady Drake and Lady Altmann, expressed concerns about gaming. The noble Lord, Lord Stevenson, admitted that the amendment was persuasive. There is consensus that the focus is people.
The Minister’s answer is simply that if the banks press for too much, the payment will not happen and the moratorium will end. That does not stop the accelerated payments and death by a thousand cuts. From the cash flows and other information they have about their clients, banks are well able to know how much they can take a company for and to pace their demands until the money is gone or they have pressurised the business into other lucrative financial arrangements. It is game on.
I am not convinced by the answer about financial stability; the Minister knows this is a subject I know very well. Contracts on market operations do not have to end; it is simply the acceleration of payment on lending that needs restriction. Every pound that is required over and above the general terms existing pre-moratorium is tantamount to reaching through and picking the pocket of employees, pension schemes and small businesses.
The scope given to banks and other lenders to press their advantage during moratorium is too great. It can remove the very breathing space that is the objective of the moratorium. I have not heard any expression of limit to reasonableness other than some kind of banking self-control caused by a moratorium end if the banks get too greedy. As my noble friend Lord Fox said, it is simply tiptoeing around the banks.
To save jobs and businesses and protect pensions, banks must be far more equally in the moratorium. No amount of employee consultation can blunt the banks, and I wish to test the opinion of the House.
“( ) However, the court may not give permission for the disposal of any property or asset under subsection (1) which has been pledged to the company’s defined benefit pension scheme unless the Pension Protection Fund has given prior permission for its disposal.”
Lord Fox
My Lords, we heard what the Minister had to say, and I and others have already spoken at length on this amendment. The principle is that a deal is a deal: the pensioners were granted those assets and the idea that that can retrospectively be prised from the deferred salaries and wages of workers is such that I do not think the Bill should leave this House without it being tested. I therefore wish to test the will of the House.
Lord Callanan
“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by section 126 of the Pensions Act 2004, the Board of the Pension Protection Fund.”Member’s explanatory statement
This amendment extends the duty to give notice that the monitor has changed.
“A44A Challenge brought by Board of the Pension Protection Fund(1) This section applies where—(a) a moratorium—(i) is in force in relation to a company that is an employer in respect of an eligible scheme, or(ii) is or has been in force in relation to a company that has been an employer in respect of an eligible scheme at any time during the moratorium, and(b) the trustees or managers of the scheme are a creditor of the company.(2) The Board of the Pension Protection Fund may make any application under section A42(1) or A44(1) that could be made by the trustees or managers as a creditor.(3) For the purposes of such an application, any reference in section A42(1) or A44(1) to the interests of the applicant is to be read as a reference to the interests of the trustees or managers as a creditor.(4) In this section “eligible scheme” has the meaning given by section 126 of the Pensions Act 2004.”Member’s explanatory statement
This amendment gives the Board of the Pension Protection Fund the same rights to challenge the monitor or the directors as the trustees or managers of certain pensions schemes have.
“A49A Power to make provision in connection with pension schemes (1) The Secretary of State may by regulations provide that, in a case where—(a) a moratorium—(i) is in force in relation to a company that is an employer in respect of an eligible scheme, or(ii) is or has been in force in relation to a company that has been an employer in respect of an eligible scheme at any time during the moratorium, and(b) the trustees or managers of the scheme are a creditor of the company,the Board of the Pension Protection Fund may exercise any of the following rights.(2) The rights are those which are exercisable by the trustees or managers as a creditor of the company under or by virtue of—(a) section A12, or(b) a court order under section A44(4)(c).(3) Regulations under subsection (1) may provide that the Board may exercise any such rights—(a) to the exclusion of the trustees or managers of the scheme, or(b) in addition to the exercise of those rights by the trustees or managers of the scheme.(4) Regulations under subsection (1)—(a) may specify conditions that must be met before the Board may exercise any such rights;(b) may provide for any such rights to be exercisable by the Board for a specified period;(c) may make provision in connection with any such rights ceasing to be so exercisable at the end of such a period.(5) Regulations under subsection (1) are subject to the affirmative resolution procedure.(6) In this section “eligible scheme” has the meaning given by section 126 of the Pensions Act 2004.”Member’s explanatory statement
This amendment enables the Board of the Pension Protection Fund to be given the power to exercise certain rights of the trustees or managers of a pension scheme.
““employer”, in relation to a pension scheme—(a) in sections A8(2)(c), A17(8)(c) and A39(8)(c), means an employer within the meaning of section 318(1) of the Pensions Act 2004;(b) elsewhere in this Part, has the same meaning that it has for the purposes of Part 2 of the Pensions Act 2004 (see section 318(1) and (4) of that Act);”Member’s explanatory statement
This amendment defines “employer” for the purposes of the Minister’s other amendments to clause 1 which use that term.
““money purchase scheme” has the meaning given by section 181(1) of the Pension Schemes Act 1993;”Member’s explanatory statement
This amendment defines “money purchase scheme” for the purposes of the Minister’s other amendments to clause 1 which use that term.
““occupational pension scheme” has the meaning given by section 1 of the Pension Schemes Act 1993;“pension scheme” has the meaning given by section 1 of the Pension Schemes Act 1993;” Member’s explanatory statement
This amendment defines “occupational pension scheme” and “pension scheme” for the purposes of the Minister’s other amendments to clause 1 which use those terms.
Lord Callanan
Member’s explanatory statement
This amendment narrows the power to change a list of documents, so that it is confined to adding to the list. The power could subsequently be re-exercised so as to remove anything added.
“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005, the Board of the Pension Protection Fund.”Member’s explanatory statement
This amendment extends the monitor’s duty to give notice that a moratorium has come into force.
Member’s explanatory statement
This amendment removes a Henry VIII power to change a list of documents.
Member’s explanatory statement
This amendment removes a Henry VIII power to change a list of documents.
Member’s explanatory statement
This amendment removes a Henry VIII power to change a list of documents.
“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005, the Board of the Pension Protection Fund.”Member’s explanatory statement
This amendment extends the monitor’s duties to give notice where a moratorium is extended or comes to an end.
“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005, the Board of the Pension Protection Fund.” Member’s explanatory statement
This amendment extends the duty to give notice that the monitor has changed.
“13FC Challenge brought by Board of the Pension Protection Fund(1) This Article applies where—(a) a moratorium—(i) is in force in relation to a company that is an employer in respect of an eligible scheme, or(ii) is or has been in force in relation to a company that has been an employer in respect of an eligible scheme at any time during the moratorium, and(b) the trustees or managers of the scheme are a creditor of the company.(2) The Board of the Pension Protection Fund may make any application under Article 13F(1) or 13FB(1) that could be made by the trustees or managers as a creditor.(3) For the purposes of such an application, any reference in Article 13F(1) or 13FB(1) to the interests of the applicant is to be read as a reference to the interests of the trustees or managers as a creditor.(4) In this Article “eligible scheme” has the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005.”Member’s explanatory statement
This amendment gives the Board of the Pension Protection Fund the same rights to challenge the monitor or the directors as the trustees or managers of certain pension schemes have.
Member’s explanatory statement
This amendment removes the temporary modification to the parliamentary procedure for regulations. See also the proposed new clause in the Minister’s name to be inserted after Clause 43.
“13HAA Power to make provision in connection with pension schemes(1) A Northern Ireland department may by regulations provide that, in a case where—(a) a moratorium—(i) is in force in relation to a company that is an employer in respect of an eligible scheme, or(ii) is or has been in force in relation to a company that has been an employer in respect of an eligible scheme at any time during the moratorium, and(b) the trustees or managers of the scheme are a creditor of the company,the Board of the Pension Protection Fund may exercise any of the following rights.(2) The rights are those which are exercisable by the trustees or managers as a creditor of the company under or by virtue of—(a) Article 13CC, or(b) a court order under Article 13FB(4)(c).(3) Regulations under paragraph (1) may provide that the Board may exercise any such rights—(a) to the exclusion of the trustees or managers of the scheme, or(b) in addition to the exercise of those rights by the trustees or managers of the scheme.(4) Regulations under paragraph (1)— (a) may specify conditions that must be met before the Board may exercise any such rights;(b) may provide for any such rights to be exercisable by the Board for a specified period;(c) may make provision in connection with any such rights ceasing to be so exercisable at the end of such a period.(5) Regulations may not be made under paragraph (1) unless a draft of the regulations has been laid before, and approved by a resolution of, the Assembly.(6) In this Article “eligible scheme” has the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005.”Member’s explanatory statement
This amendment enables the Board of the Pension Protection Fund to be given the power to exercise certain rights of the trustees or managers of a pension scheme.
““employer”, in relation to a pension scheme—(a) in Articles 13BE(2)(c), 13CH(8)(c) and 13EE(8)(c), means an employer within the meaning of Article 2(2) of the Pensions (Northern Ireland) Order 2005;(b) elsewhere in this Part, has the same meaning that it has for the purposes of Part 3 of the Pensions (Northern Ireland) Order 2005 (see Article 2(2) and (5) of that Order);”Member’s explanatory statement
This amendment defines “employer” for the purposes of the Minister’s other amendments to Clause 4 which use that term.
““money purchase scheme” has the meaning given by section 176(1) of the Pension Schemes (Northern Ireland) Act 1993;”Member’s explanatory statement
This amendment defines “money purchase scheme” for the purposes of the Minister’s other amendments to Clause 4 which use that term.
““occupational pension scheme” has the meaning given by section 1 of the Pension Schemes (Northern Ireland) Act 1993;“pension scheme” has the meaning given by section 1 of the Pension Schemes (Northern Ireland) Act 1993;”Member’s explanatory statement
This amendment defines “occupational pension scheme” and “pension scheme” for the purposes of the Minister’s other amendments to Clause 4 which use those terms.
Lord Callanan
“Administration in Great Britain: revival of power about sales to connected persons
(1) Paragraph 60A of Schedule B1 to the Insolvency Act 1986 (which expired in May 2020) is revived.(2) For sub-paragraph (10) of that paragraph substitute—“(10) This paragraph expires at the end of June 2021 unless the power conferred by it is exercised before then.””Member’s explanatory statement
This amendment revives paragraph 60A of Schedule B1 to the Insolvency Act 1986, which expired in May 2020 by virtue of the sunset provision in sub-paragraph (10) of that paragraph.
The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)
I remind noble Lords that Members other than the mover of an amendment and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or any other amendment in the group to a Division should make that clear in the debate.
Lord Callanan
My Lords, the Government have listened carefully to the concerns raised by noble Lords in Committee and elsewhere.
Where used appropriately, pre-pack sales can perform a useful rescue function. In some instances, sales to connected parties are beneficial. However, we accept that the nature of the transaction and the speed with which it is carried out might also provide some opportunities for mischief. This could particularly be the case during the current crisis. The Government acknowledge that there may be a risk of an increase in the use of pre-pack sales, which could adversely affect businesses already struggling as a result of Covid-19.
The Government therefore propose amendments to revive the power, which expired in May 2020, to regulate sales in administration to connected parties, and to introduce a similar power in Northern Ireland. These government amendments will revive paragraph 60A in Schedule B1 to the Insolvency Act 1986. This will enable the Secretary of State to make regulations to prohibit or impose requirements or conditions in relation to the sale of property of a company by the administrator to a connected person, in circumstances specified in the regulations. This power will expire at the end of June 2021, unless it is previously exercised.
The amendments will also insert a new power in Schedule B1 to the Insolvency (Northern Ireland) Order 1989 to enable similar regulation of sales to a connected person in Northern Ireland. This power will also be time limited until the end of June 2021, unless previously exercised. Regulations made under the power in Northern Ireland must be laid in draft and approved by a resolution of the Northern Ireland Assembly. And we are going further: ahead of using the power, we will publish the Government’s review of existing voluntary measures in respect of pre-pack sales this summer to help further inform the public debate on this issue. I beg to move.
Lord Hodgson of Astley Abbotts
My Lords, I have Amendment 45 in this group but, before I speak on it, perhaps I may say that I entirely support the Government’s Amendments 37 and 38. They are very sensible and have my unequivocal support.
I turn to Amendment 45, to which the noble Lord, Lord Vaux, the noble Baroness, Lady Bowles, and my noble friend Lady Altmann have added their names. I am most grateful to them and indeed to other noble Lords all across the House who have been in touch with me to say that it seems a sensible way of proceeding. We discussed this matter at length last Wednesday. I shall try to avoid repeating myself, although of course I need to fill in the story for those who have just joined in at this stage.
Like my noble friends Lord Callanan, Lord Leigh and Lord Holmes of Richmond, I recognise that pre-packs have their uses. As I said in the debate last week, they are a useful spanner in the toolbox of the insolvency practitioner. However, they are open to serious abuse, as my noble friend Lord Callanan admitted a moment ago. Let us quickly run through a real-life example, and here I will slightly repeat what I said last week.
I ask noble Lords to imagine the following. You are a director of a company that is struggling because of past operating losses, which have led to large debts being accumulated; or perhaps it is a very old, established engineering or industrial company that has a long tail of pension liabilities that get increasingly heavy. Insolvency and administration loom over you, but you and your fellow directors feel that somewhere in the business is a really profitable activity. However, the company is worth saving only if you can get rid of all your debts. Therefore, you, as a group of directors—maybe with some associates—find an administrator and say that you would like to make an offer for the bits that you want. That offer might be very substantial but, equally, it might be £1 or £1,000. That is the key to the problem that we are trying to tackle here. Nobody can say that anything is wrong where a fair-value, full-price offer is made.
You make a nominal offer on, say, a Friday, which means that the company is put into administration over the weekend. On Monday, you advertise it in the newspapers and after four days, if the administrator has had no competing offers, he or she can say that they have tested the market and have obtained a fair price. It is of course vanishingly unlikely, although possible, that within four days anybody will be able to come up with an offer de novo, from a standing start. Your group, having paid the money to the administrator, is now the proud owner of a company that is without all its liabilities to suppliers great and small, local and national, as well as to the Pension Protection Fund—but you might be the very people who led the company to the edge of disaster in the first place.
Many in your Lordships’ House would ask “How could this possibly be?” It has an awfully superficially attractive political ring to it. A Minister, a councillor or a Member of Parliament can get up and say, “Look, I’ve just saved 300 jobs.” That sounds awfully good, but nobody weighs on the scale what is happening elsewhere. For every debt that you have written off, another company loses money. It might be a small local supplier that might have to make redundancies of its own and might itself, in extremis, go into receivership. There is also the general damage to the local economy, as there is to the Pension Protection Fund. This has always seemed to me, at least, to be a very unfair way of proceeding unless it is properly supervised.
Lord Vaux of Harrowden (CB) [V]
My Lords, I support Amendment 45, in the name of the noble Lord, Lord Hodgson. In Committee, I tabled a similar amendment but am happy to support his more robust version. I remind the House of my interests as a chartered accountant.
It is good to see that the Government have tabled Amendments 37 and 38, which would reinstate for another 15 months the power that the Government already had to improve the regulation of connected party pre-packs but which they allowed to lapse, possibly unintentionally. That amendment is most welcome but it does not address the urgency of the situation: the fact that we are facing a substantial rise in insolvencies very soon. The noble Lord, Lord Hodgson, memorably described it in Committee as a storm that is bound to come.
It is inevitable that we will see many more pre-packs to related parties in the coming months. Another high-profile potential related-party pre-pack is being talked about just today: Go Outdoors, which is owned by JD Sports. As we have heard, many may well be entirely appropriate and even a good thing, However, they lack transparency and we are likely to see many others, such as the Quiz transaction, which the noble Lord, Lord Mendelsohn, so graphically described in Committee, which are nothing less than a rip-off of creditors. We need something to deal with the immediate risk, not just a power to take action which might or might not be used for another year, or even at all.
I confess that I struggle to understand why the Government find it so difficult to accept this amendment, which would introduce at least some independent review and transparency into this murky area of insolvency practice. The main argument put forward by the Minister is that the insolvency profession is highly regulated with strong professional standards, and that we can rely on it to ensure that all transactions are appropriate. But that is self-evidently not the case: there are so many past examples of inappropriate pre-packs that it is clear that we cannot just rely on the industry to police itself. Conflicts of interest are legion. The noble Lord, Lord Hodgson, explained in Committee and has repeated today how insolvency practitioners can, and do, tick the boxes by spurious marketing of the business, thereby covering the administrators’ derrière—what used to be known in my accountancy days as CYA.
The Minister explicitly recognised the concerns about connected party pre-packs at Second Reading and has done so again today, which is very welcome. He has also argued that making referral mandatory would be an additional burden on business at a difficult time. But the pre-pack pool aims to give an opinion with just half a day’s work and at a cost of just £800 to the connected party—not really a significant burden. He also asked in Committee whether it is right to restrict the required opinion to one source of supply, but that is rather like the old joke: why is there only one monopolies commission?
Why are the Government finding it so difficult to accept this amendment? Perhaps they do not believe that the pre-pack pool is the right answer. Did the Minister disagree with Teresa Graham, who produced the report for the Government that led to the creation of the pool, when she said recently:
“To see the demise of the pre-pack pool would be utter folly”?
The letter that the Minister sent to the pool, and his answers to questions in Committee, were certainly less than fulsome in their support. If that is the case, there is an easy answer for him. The immediate solution is, first, to make referral to the pre-pack pool mandatory now, as this amendment suggests. With one short amendment, at a stroke we will have instantly made independent review compulsory, improved transparency and reduced the risk to the moratorium as well. There would be no new bodies or processes; it would have minimal cost and bureaucracy. It would not in any way inhibit those situations where the proposed pre-pack is appropriate.
Subsequently, if the Government still do not believe that the pre-pack pool is the right long-term solution, they have the power to propose something better at any time within the next 15 months under their Amendment 37. We have the best of both worlds: an instant, simple solution and the luxury of time to create something better. I urge the Minister to accept Amendment 45. If he does not, then I hope that the noble Lord, Lord Hodgson, will test the opinion of the House. We have a clear duty to prevent creditors being ripped off in this coming storm.
Baroness Altmann [V]
My Lords, I will be brief. I very much support the wise words of my noble friend Lord Hodgson of Astley Abbotts and the noble Lord, Lord Vaux. I welcome Amendments 37 and 38, and I cannot quite understand the reluctance of the Government to agree to this amendment; I know that there has been significant discussion on it.
Clearly, any pre-pack can have positive effects, but the transparency and oversight issues, particularly in the current emergency environment, surely require some modicum of independent oversight. We have the pool ready to go and are in a position where we could anticipate problems, rather than trying to deal with them after they have arisen, when it is too late for the small creditors that could be so damaged by the egregious practices that we in this House have all heard about, and many noble Lords have previously explained.
I hope that my noble friend can give sufficient reassurances to the House on this issue. However, I will support Amendment 45, should that not be possible.
Baroness Neville-Rolfe [V]
My Lords, I thank the Minister very warmly for accepting the amendment on pre-packs that I put down in Committee, on which I had the help of the British Property Federation. The amendment was designed to restore the power in the Small Business, Enterprise and Employment Act. Amendments 37 and 38 have been drafted by parliamentary counsel and use a much more elegant formula to amend the original Insolvency Act, but to the same effect and with the same deadline of June 2021. I would like an assurance from my noble friend the Minister that that power will be used and that it will be able to deal with some of the pre-pack issues.
I would like to thank my noble friend Lord Hodgson, who has demonstrated his admirable virtuosity—he is not merely an expert on pubs and demography, as the House knows, but on insolvency, as well as many other things. I also support the thrust of his amendment. I should add that, without his oratory and argument last week, we would not have made the progress that we have.
Lord Palmer of Childs Hill [V]
My Lords, I support wholeheartedly the amendment from the noble Lord, Lord Hodgson. It seems sensible, and I hope that the Government will accept it. Having heard a previous speaker do so, I must declare my interest as a chartered accountant.
Many speakers in today’s debate have drawn a difference between selling or transferring a business and selling a company. The idea of a pool was meant to be a sort of bridge between the two, so that the business can survive—but there is of course a danger that it can be taken advantage of. When Vince Cable set out this principle, on the advice of Teresa Graham, it was to set up a pool. It might perhaps be useful to read into the debate the members of the oversight group, which comprises representatives of the founding parties of the pool: R3, the Association of Business Recovery Professionals; the Association of Chartered Certified Accountants; the British Property Federation; the British Printing Industries Federation; the Chartered Accountants Regulatory Board; the Chartered Institute of Credit Management; and the Institute of Chartered Accountants. It is a long, long list.
To ask that one member of the pre-pack pool should say that the transaction is not unreasonable seems a sensible move to deal with what we believe will be a tsunami of liquidations and business problems, and it shows another way of skinning the cat rather than just using a monitor or going straight into liquidation. So I heartily support the amendment in the name of the noble Lord, Lord Hodgson.
Lord Fox
My Lords, very briefly, it seems that the solution of the noble Lord, Lord Hodgson, is very elegant, and, like the noble Lord, Lord Vaux, I am struggling to find out why the Government might not accept it. One of the things that has come up on a number of occasions is the need for speed for both the Bill and decision-making: “We do not have time to talk to the workers”; “We do not have time to do this.” This is an opportunity to take one moment out and review whether this move—a pre-pack—is in the best interests of all concerned. I cannot see why the Government would not support it, and I expect that the Minister will stand up and wholeheartedly embrace Amendment 45 shortly.
Baroness Bowles of Berkhamsted [V]
My Lords, I supported the pre-pack amendments in Committee and have done so again. The reason for the amendment in the name of the noble Lord, Lord Hodgson, is simple: reference to the pool is not happening, and bad pre-packs are. Like others, I do not consider all pre-packs to be bad, but it is unquestionable that some bad deals are going on.
The Government are reinstating a provision to give themselves powers that have recently lapsed. I do not wish to prevent that but, as the noble Lord, Lord Hodgson, said, that power has already lain for too long—for five years—without regulations being forthcoming. Due to coronavirus, more deals and insolvencies are likely, and there will be horrid cases, as the noble Lord, Lord Hodgson, said. The noble Lord, Lord Vaux, also reminded us again of the storm that is about to come—or the “tsunami”, as my noble friend Lord Palmer said. Every day we already hear of more, and some are a rip-off of creditors, as the noble Lord, Lord Mendelsohn, said in Committee and as the noble Lord, Lord Vaux, reminded us. The evidence is that insolvency practitioners can easily tick boxes to cover themselves. It is happening.
This amendment is simple and complete: use the panel that has been set up. In Committee the Minister was critical of the fact that the panel is set up in a light-touch way rather than having a regulatory power, but it is like that because government wanted it that way. If the Government want to come forward with powers for ARGA to take over the job—and to make ARGA happy—I will be there in support. But that is not here now, and nor are other regulations. So let us not hurt the public still further by having the recovery from Covid littered with scandals of cosy and inappropriate pre-packs. This is another feature of how the unfairness built into the moratorium will work, with pressure for restructuring, where the big winners will be the financiers. The least we can do is to have some assurance that the deal meets the standard of reasonableness.
Lord Stevenson of Balmacara [V]
My Lords, my name is on Amendment 46, as I strongly support the noble Baroness, Lady Neville-Rolfe, in her attempt to revive the powers taken in the small business Act 2015. We supported her in 2015 and pressed then for action to be taken against the abuses which were occurring in the pre-pack cases that came to light at the time.
However, as the noble Baroness said, thanks mainly to the rhetoric of the noble Lord, Lord Hodgson, and my noble friend Lord Mendelsohn, the Government have done a U-turn. Therefore, purely on consistency grounds, it is logical and right that we should support Amendments 37 and 38 in the name of the noble Lord, Lord Callanan. When he responds, I hope that he will confirm that he intends to use these powers and to act urgently.
I have been in discussion during the past couple of weeks with the noble Lord, Lord Hodgson of Astley Abbotts, about his Amendment 45. In the absence of government Amendments 37 and 38, I would have backed his proposal. However, I have an old-fashioned view about statutory powers being operated by non-statutory bodies such as the pre-pack pool. Given that the powers sought by Amendment 45 are contained within those to be taken under Amendments 37 and 38 and that, as the noble Lord, Lord Hodgson, admitted, there are some problems with the existing arrangements —the noble Lord, Lord Vaux, called them “murky” and denigrated the standards being achieved—I am minded to support the Government on this issue.
Lord Callanan
I thank my noble friends Lord Hodgson, Lady Altmann and Lady Neville-Rolfe, as well as the noble Lords, Lord Vaux and Lord Stevenson, and the noble Baroness, Lady Bowles, for their amendments, which would regulate pre-pack sales in administration.
It goes without saying that pre-pack sales have been a contentious subject during debates on this Bill in both Houses and, as some Members have indicated, on previous Bills. There was an impassioned debate about pre-packs in Committee, and I am grateful for the helpful contributions made during that debate by many of the aforementioned noble Lords, as well as the noble Lord, Lord Mendelsohn. I have certainly benefited from speaking to many of them in separate meetings with officials in trying to plot a route forward on this issue.
During that debate, I briefly explained some of the reasons why I did not think that Amendment 45, now brought back on Report, would be suitable. These included that the need for a positive opinion from a member of the pre-pack pool might create a potential conflict with the statutory objective of the administrator, which is to achieve a better result for creditors as a whole than if the company were wound up. There would also be a problem in that the amendment would prevent a sale without an opinion from the pre-pack pool even where the creditors had agreed that it should go ahead.
Moreover, whether a sale went ahead would be entirely dependent on a member of the pool assessing that it was not “unreasonable”, but the amendment provides no guidance on what “unreasonable” means in this context. This is likely to create significant uncertainty for businesses as to what is allowed and, of course, a significant risk of legal challenge.
Amendment 45 would capture only pre-pack transactions that had been negotiated with an associate before a company entered administration. The definition of “connected person” in paragraph 60A of Schedule B1 is drawn more widely than the definition of “associate” in Amendment 45, so the scope of the government amendment is in this case broader.
I also mentioned in Committee that there could be a difficulty in restricting supply of opinion to the pre-pack pool. I know that my noble friend Lord Hodgson expressed scepticism about my reasoning, but it is a proper concern that this could raise issues regarding anti-competitiveness.
My noble friend also suggested that pension liability could be removed. I point out to him that the Pension Protection Fund has confirmed that it does not generally see any evidence that pre-pack sales are being used to abandon pensions liabilities. Further, it considers that the Pensions Regulator has sufficient anti-avoidance powers to act as a deterrent against the misuse of pre-pack sales for the purposes of dumping a pension scheme.
I can say in response to a number of noble Lords who asked me questions—for instance, my noble friend Lady Neville-Rolfe, the noble Baroness, Lady Bowles, and the noble Lord, Lord Stevenson—that, if the government amendment is passed, we will publish in the summer a review of the existing voluntary measures to reform pre-pack sales and will set out in that report proposals for when and how we will regulate.
The amendment in the names of my noble friend Lady Neville-Rolfe and the noble Lord, Lord Stevenson, took a different approach—it would partially resurrect a previously lapsed power to regulate sales to connected persons in administration. The amendment does not quite go far enough to be workable but, as I set out earlier, we now have government amendments in that space, which I hope will work well; we have decided to table our own amendments to regulate pre-pack sales.
Having said that, and with the reassurances that I have given to the House, I hope that noble Lords will accept the assurances and information that I have been able to provide and will therefore not move their amendments when the time comes.
Lord Callanan
“Administration in Northern Ireland: power about sales to connected persons
(1) The Insolvency (Northern Ireland) Order 1989 (S.I. 1989/ 2405 (N.I. 19)) is amended as follows.(2) Schedule B1 (administration) is amended in accordance with subsections (3) to (5).(3) Paragraph 61 (powers of administrator) becomes sub-paragraph (1) of that paragraph.(4) After that sub-paragraph insert—“(2) But the power to sell, hire out or otherwise dispose of property is subject to any regulations that may be made under paragraph 61A.”(5) After paragraph 61 insert—“61 Regulations may make provision for—(a) prohibiting, or(b) imposing requirements or conditions in relation to,the disposal, hiring out or sale of property of a company by the administrator to a connected person in circumstances specified in the regulations.(2) Regulations under this paragraph may in particular require the approval of, or provide for the imposition of requirements or conditions by—(a) creditors of the company,(b) the High Court, or(c) a person of a description specified in the regulations.(3) In sub-paragraph (1), “connected person”, in relation to a company, means—(a) a relevant person in relation to the company, or(b) a company connected with the company.(4) For the purposes of sub-paragraph (3)—(a) “relevant person”, in relation to a company, means—(i) a director or other officer, or shadow director, of the company;(ii) a non-employee associate of such a person;(iii) a non-employee associate of the company;(b) a company is connected with another if any relevant person of one is or has been a relevant person of the other.(5) In sub-paragraph (4), “non-employee associate” of a person means a person who is an associate of that person otherwise than by virtue of employing or being employed by that person.(6) Paragraph (11) of Article 4 (extended definition of company) applies for the purposes of sub-paragraphs (3) to (5) as it applies for the purposes of that Article.(7) Regulations under this paragraph may make incidental, consequential, supplemental and transitional provision. (8) Regulations may not be made under this paragraph unless a draft of the regulations has been laid before, and approved by a resolution of, the Assembly.(9) This paragraph expires at the end of June 2021 unless the power conferred by it is exercised before then.”(6) In Article 2(2), in the definition of “regulations”, after the words “and paragraph 16 of Schedule A1”(which are repealed by paragraph 3(b) of Schedule 7 to this Act) insert “and paragraph 61A of Schedule B1”.”Member’s explanatory statement
This amendment confers a power to make provision under the law of Northern Ireland about sales to connected persons in the context of an administration. It is similar to the corresponding power in Great Britain (which is revived by one of the Minister’s other amendments).
The Deputy Speaker
I remind noble Lords that Members other than the mover of the amendment and the Minister may speak only once. Anyone wishing to press this or any other amendment in the group to a Division should make that clear in the debate.
Clause 10: Suspension of liability for wrongful trading: Great Britain
Amendment 39
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of Clause 10 so that the period ends with 30 September 2020.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I turn to the amendments in this group tabled by the Government, which extend the temporary insolvency measures in the Bill. Each of these measures delivers relief to those companies affected by the economic impact of Covid-19. The protections for companies from winding-up petitions and statutory demands will help struggling businesses by temporarily removing the threat of winding-up proceedings. The suspension of wrongful trading enables directors to make decisions about whether to carry on trading without the threat of personal liability. Modifications to the new moratorium will extend their benefits to companies that may otherwise not have been sure of accessing this procedure, and the small supplier carve-out from the termination clause provisions will help support small business suppliers.
We have listened to the concerns raised in the House regarding the expiry of the temporary insolvency measures and whether they should be extended. We agree that the period of uncertainty caused by the coronavirus will not have ended by the time these measures are currently due to expire. Therefore, an extension to 30 September 2020 will ensure that the measures continue to provide support to those companies impacted by the current pandemic. For this reason, I commend the government amendments in this group to the House. I beg to move.
The Deputy Speaker (Lord Bates) (Con)
I call the noble Baroness, Lady Taylor. No? Then I call the noble Lord, Lord Pannick.
Lord Pannick (CB) [V]
My Lords, I am speaking to Amendments 103 and 106, which are in my name and in the names of three other members of your Lordships’ Constitution Committee: our esteemed chairman—the noble Baroness, Lady Taylor of Bolton—the noble Baroness, Lady Fookes, and the noble and learned Lord, Lord Wallace of Tankerness.
These amendments address aspects of the retrospective nature of provisions in the Bill. Paragraph 7 of Schedule 10 and paragraph 7 of Schedule 11 will render void a relevant winding-up order which was made by a court on or after 27 April this year but before the day on which the schedules come into force.
Lord Wallace of Tankerness [V]
My Lords, in Committee I made the point that even during a crisis it is still important that we are vigilant in scrutinising legislation, particularly where basic rule of law issues are at stake. Specifically, I drew attention to the provisions in the Bill that raise the fundamental question of retrospective legislation. The noble Lord, Lord Pannick, one of my fellow members of the Constitution Committee, has just outlined why it is important that we closely scrutinise attempts by government to introduce retrospection in legislation.
I place on record my thanks to the noble Earl, Lord Howe, for his very prompt reply to some of the points I raised in Committee—echoed by the noble Lord, Lord Howarth of Newport, who is also on the Constitution Committee. As the noble Lord, Lord Pannick, indicated, we have now received the Government’s response to the Constitution Committee’s seventh report on the Bill—although, as he pointed out, the committee has not had a proper opportunity to consider that response.
As we have heard, retrospective legislation prima facie offends the rule of law, although it is recognised that there will be occasions, when there is an urgent or compelling need, when it may be necessary. I will address the retrospection issues in Amendment 40 and its equivalent Northern Ireland provision, Amendment 42. They draw particular attention to the retrospective nature of Clauses 10 and 11, which suspend directors’ liability for wrongful trading in Great Britain and Northern Ireland.
Under insolvency legislation, the general rule is that a court may hold directors personally liable for allowing a company to continue trading beyond the point when insolvency appears inevitable. The provisions in Clauses 10 and 11 oblige the courts to assume that a director is not responsible for any worsening of the financial position of the company or its creditors that occurs during the “relevant period”, which starts on 1 March and—with reference to the amendment the Government have just moved—would conclude on 30 September this year.
Clearly, if that is the assumption the courts are obliged to make—there is no suggestion in the legislation that it is a rebuttable presumption—no one will go to court to challenge the behaviour of a director. Indeed, the rationale for the policy, set out in the Explanatory Notes and reiterated in the Government’s response to the Constitution Committee report, is that the deterrent to a company continuing to trade where there is a threat of insolvency is removed by these clauses. Pandemic-induced insolvencies can thus be avoided.
To use the words of the Explanatory Notes, I fully recognise the merit of helping
“to prevent businesses, which would be viable but for the impact of the pandemic, from closing.”
I suspect that most, if not all, of us would generally assent to that. However, I will point out two aspects of the Government’s arguments that need further clarification. As pointed out in the Constitution Committee’s seventh report, the removal of the so-called deterrent effect cannot credibly be said to have carried any weight in decisions taken by directors between 1 March and the date when the policy to suspend personal liability for wrongful trading was announced, 28 March, allowing almost four weeks of extra retrospective effect. Secondly, as the Government acknowledge in paragraph 225 of the Explanatory Notes:
“There is no requirement to show that the company’s worsening financial position was due to the COVID-19 pandemic.”
The amendments to which I am speaking seek to maintain the spirit of the concession on wrongful trading and would apply only if the courts are satisfied that on the underlying facts, creditors can discharge the burden of proving that the instance of wrongful trading was not attributable to the financial pressures of the pandemic.
The Constitution Committee’s seventh report says that
“measures with retrospective effect are exceptional and undesirable in principle, requiring the strongest possible justification. We do not think the Government has yet made the case for them”.
As we heard from the noble Lord, Lord Pannick, the Government have now responded. In fairness, in my reading of that response the Minister seeks to give some justification for the exceptional retrospective effect of these provisions in relation to wrongful trading. I echo the noble Lord, Lord Pannick: it would be helpful if the Government could set out on the record, on the Floor of the House, what these justifications are.
Furthermore, on page 4 of his reply the noble Lord, Lord Callanan, states that
“the temporary suspension of liability for wrongful trading is required to mitigate the effects of the COVID-19 emergency, and is a proportionate measure. There are safeguards against abuse in the form of other, unchanged elements of Company and Insolvency law. As I have also set out above, given the inevitable delay in drawing up legislation, it was essential to give public assurance that these provisions would have retrospective effect in order for them to be able to have their intended effect on directors’ confidence in continuing to keep their companies going.”
In conclusion, I have two questions for the Minister arising from that response. First, what is the rationale for the retrospection’s having effect from 1 March, rather than from a date when the Government were able to give the public assurance referred to by the noble Lord, Lord Callanan, given that ahead of the announcement, there could be no removal of the so-called deterrent effect? Secondly, can the Minister confirm that an announcement by the Government of their intention to change the law is not, by itself, sufficient justification for using retrospective legislation and should not become a regular practice? I look forward with interest to her reply.
Lord Bourne of Aberystwyth [V]
My Lords, I support Amendment 40 in the names of the noble and learned Lord, Lord Wallace of Tankerness, the noble Baroness, Lady Taylor of Bolton, the noble Lord, Lord Pannick, and my noble friend Baroness Fookes. I share the concern about the retrospective nature of some of the amendments. I accept that in extremis, in rare situations, retrospective legislation may be justifiable, but I would welcome the Minister addressing why it is felt to be appropriate here.
At Second Reading I expressed my concern that the offence of wrongful trading is being disregarded in relation to matters that are not Covid-19-related. It is quite reasonable, as the noble and learned Lord, Lord Wallace of Tankerness, has just indicated, that there should be some mitigation of the provisions in relation to Covid-19-related deaths. However, if the insolvency is not due to Covid-19, it is hard to see why the provision should be suspended. This provision, brought in as a result of the recommendations of the Cork committee in the 1980s, was widely welcomed as tackling conduct by directors acting—or in some cases, failing to act—with malfeasance, resulting in companies having substantial debts and doing damage to employees and shareholders. I can see why that may need to be suspended for Covid-19-related deaths, but this goes further. That is why I support this amendment, which would minimise the effect of the suspension of wrongful trading. It would be suspended not in relation to broader activities but only to those concerning Covid-19-related deaths.
However, of greater concern, as we have just heard, is the retrospective nature of this part of the Bill. I would welcome the Minister addressing these points. In any event, the Government have gone further on wrongful trading than they should have. They are seeking to punish creditors who have debts that could well be enforced, as they have nothing to do with the Covid-19 emergency.
Baroness Barker
My Lords, I thank the noble Lord, Lord Callanan, for listening to what was clearly a compelling speech by me in Committee and bringing forward Amendment 39, which extends from 30 June to 30 September the period during which the relaxation of judgment in relation to wrongful trading will apply. I say this not because of any wish to encourage wrongful trading or to see people who trade wrongfully not properly held to account by a court, but because I know from experience of helping companies trying to get through periods of instability—charities, in my case—that they simply may not know at this point whether they will be wrongfully trading next month.
Lord Stevenson of Balmacara [V]
Briefly, the amendments on dates tabled in Committee that the noble Baroness, Lady Barker, mentioned were also in my name. I am therefore very grateful that the Government have decided to extend the initial period to September 2020. That does not seem to be contested by anybody.
My major point on the rest of the amendments concerns whether there should be retrospection in the Bill at all, but people seem to have broadly accepted that, with the condition that we expect the Minister to make a very full statement on it. In passing, I have received quite a lot of representations about the Bill in my position as the Labour Front-Bench spokesman, and the vast majority were on this particular aspect. Therefore, there is public sensibility about it and I am grateful that the Minister will deal with it when she responds.
The Deputy Speaker
Just before I call the Minister, I am going to see whether we can try the noble Baroness, Lady Taylor, again. No? I call the Minister.
Baroness Bloomfield of Hinton Waldrist
I thank my noble friend Lady Fookes, the noble Baroness, Lady Taylor of Bolton, the noble and learned Lord, Lord Wallace of Tankerness, and the noble Lord, Lord Pannick, for the issues they raised concerning the suspension of wrongful trading and restrictions on winding-up petitions.
I turn first to Amendments 40 and 42, which seek to remove the suspension of wrongful trading in cases where a company’s financial problems are unrelated to the coronavirus. Noble Lords will recall that the purpose of this measure is to remove the potential for wrongful trading liability at a time when many directors have been, and still are, making difficult decisions about the future of their companies. The suspension does not mean that a struggling company could just carry on trading without any regard for the consequences, but that, if it unfortunately enters insolvency, the directors will not face personal liability for using their best endeavours and trading while the pandemic is having such an impact on businesses.
Amendments 40 and 42 would disapply the suspension of wrongful trading if it can be shown that the underlying causes of the problems are unrelated to Covid-19. While this is a laudable aim, I fear that at this uncertain time it would be very difficult for directors to disentangle the various reasons for their company’s woes. Asking them to be 100% certain that those difficulties are related exclusively to Covid-19 before continuing to trade may be a test too far. Moreover, they would want to be 100% certain. The threat of personal liability is a very effective deterrent and directors do not want to put themselves in a position where they could lose their house if they took the risk of trying to save a struggling company. The stakes here are high: if there is any doubt—and in most situations there surely will be—directors would be likely to cease trading and the objective of this measure will not be achieved.
We understand noble Lords’ concerns about a blanket suspension of liability, but other protections for creditors and the wider business community will continue to apply. For example, directors’ duties under the Companies Act 2006 and directors disqualification actions are not affected. For it to be successful in its objective to save otherwise viable businesses, the blanket suspension given by Clauses 10 and 11 is necessary.
The noble and learned Lord, Lord Wallace, and the noble Lord, Lord Pannick, asked why we are suspending trading from 1 March, as indeed did my noble friend Lord Bourne. Wrongful trading does not in itself affect normal business; rather it is the recovery action that may be made retrospectively by an insolvency officeholder against the company’s directors after the company enters insolvency proceedings. Suspension of the wrongful trading liability will not interfere with normal relationships between a business and its customers.
I turn next to Amendments 103 and 106, which would remove the retrospective provision in Schedules 10 and 11 regarding the making of winding-up orders. We understand the concerns of noble Lords regarding retrospection. This is not a step to be taken lightly and, if it is misapplied, retrospective legislation could indeed lead to significant injustice. We do not dispute the conclusion of the Constitution Committee that such measures should be based on need rather than on desirability. However, the need for retrospection in the context of this measure has been amply demonstrated, and I believe that there has been an especially compelling justification for these provisions.
Certain creditors have shown that they will pursue their debts despite government requests for pragmatism or forbearance, regardless of whether such action is in the interest of the survival of other businesses and irrespective of the impact on the economy as a whole. It is because the evidence demonstrates that the restraint required in the current circumstances can be guaranteed only through legislation that the Government have brought forward this widely supported measure.
However, its purpose would be wholly undermined if the protection it gives against certain types of undesirable creditor behaviour were to begin only after Royal Assent. That approach could have led only to an immediate rush to court by creditors urgently seeking winding-up orders in order to beat the deadline. That would have defeated the legislation even before it reached this House. It is right that creditors who have obtained winding-up orders specifically to frustrate Parliament’s legislative intention should not benefit from that behaviour. That is particularly so when the behaviour has caused potentially significant harm to a company that was the subject of a petition.
The noble Lord, Lord Pannick, and the noble and learned Lord, Lord Wallace, also asked how anyone could tell whether an order made between 27 April and the Bill coming into force is void. It is possible that a small number of creditors may not have acted responsibly and have brought winding-up petitions on the basis of the current law despite the Government’s previous announcement that this will not be allowed. The official receiver, or in Scotland the interim liquidator, will be required to bring any such circumstances to the attention of the court so that it can take appropriate measures.
I hope that noble Lords will understand why we are not able to accept Amendments 40, 42, 103 and 106, and that they will agree not to press them.
Lord Callanan
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of Clause 11 so that the period ends with 30 September 2020.
Lord Callanan
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of subsection (1)(a) of Clause 13 so that the period ends with 30 September 2020.
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of subsection (1)(a) of Clause 17 so that the period ends with 30 September 2020.
“Review of pre-pack transactions
In Schedule B1 to the Insolvency Act 1986, after paragraph 74 insert—“Review of pre-pack transactions(1) The assets of a company may not be transferred under the terms of a pre-pack transaction unless the proposed purchaser has obtained an opinion in writing from a member of the pre-pack pool that the transaction is not unreasonable.(2) In this paragraph, a “pre-pack transaction” means a transaction which is negotiated before a company enters administration, and under which all or a substantial part of the company’s assets are sold to an associate on or shortly after the appointment of an administrator.(3) For the purposes of sub-paragraph (2), “associate” has the meaning given in section 435 of the Insolvency Act 1986.””Member’s explanatory statement
This new Clause requires a positive opinion to be obtained from a member of the pre-pack pool before a company enters into a pre-pack transaction. The pre-pack pool is an independent body of experienced business people set up in response to the recommendations of Teresa Graham’s report.
Lord Hodgson of Astley Abbotts
My Lords, I listened carefully to what my noble friend said a few minutes ago. He will not expect me to be delighted by it—it was very disappointing. Perhaps I may deal with the objections that he raised, as it is worth while to do so briefly.
My noble friend gave three reasons why the pre-pack pool should not be given the powers to control or regulate pre-pack transactions. The first was that, where the creditors wanted to go ahead, a transaction could be frustrated by a pre-pack pool member saying that it could not. His officials should get a life. The creditors are at the bottom of a waterfall and, if they say that they want it to go ahead, it should, although it will probably never happen in that way. Also, my amendment refers to the transaction not being “unreasonable”: it sets a very low bar.
Secondly, my noble friend said that the definition of “associate” was faulty. I have no pride in this. If he changed the definition of “associate”, I would accept that. He has the definition in his hands and can do with it what he wishes.
Thirdly, why did the Government set up a single pre-pack pool if they wanted only a single source of permissions? It was perfectly simple. It is worth noting that the pool is set up by professional bodies. When, a week ago, I said that there were conflicts of interest in the appointment of monitors, he said to me, “No, we don’t need to worry about that because it is run by professional bodies, and they will make sure that they have codes of conduct, which means that there will not be conflicts of interest. Therefore, I should not accept your amendment.” That applies just as much to the pre-pack pool, which is the product of a series of highly respected professional bodies.
My noble friend also said—I was delighted to hear this—that those running the Pension Protection Fund have said that there had been no trouble with pre-packs. Long may that last.
My noble friend also said that a review would be available this summer. However, we do not need a review; we need somebody in charge to do something while we come out of a pandemic. That is the whole purpose of my amendment. We are not looking for a review; we are looking for something better than the pre-pack pool to be put in place. To be fair to the Government and to my noble friend, the chances of the Government being able to find the time to produce this important but small reform with everything else that is going on are vanishingly small. Therefore, we will be living with the situation where pre-packs are unregulated post the collapse of the pre-pack pool.
To come to the point, I want to keep the pre-pack pool in existence, and that is what my amendment is about. It is not about politics; it is about good business practice. It is about fairness and about helping the deserving case and stopping the crooked one. It is about protecting firms and suppliers from being ripped off, and it is about assisting the Pension Protection Fund.
I was very sad to hear the noble Lord, Lord Stevenson, whom I have always found to be a man of discerning judgment, speaking on behalf of the Labour Party and saying that he could not support the amendment. Instead, he is creeping away from the sound of the battle and covering himself with the fig-leaf that somehow we should not endow non-statutory bodies with statutory powers. If that is a big constitutional point, we might have heard about it when he spoke about this at earlier stages of the Bill.
In conclusion, those who read their Damon Runyon will be familiar with a character called Harry the Horse, whose catchphrase was, “Put up or shut up”. After 15 years on this subject, during which we have had no real action from the Government, the time has come for those of us who believe that fairness is what we should be aiming for to “put up”. I beg leave to test the opinion of the House.
Lord Callanan
“( ) the need for the provision made by the regulations is urgent,”Member’s explanatory statement
This amendment makes urgency a condition of the exercise of the power in Clause 18.
Lord Callanan
“(i) after the period of one year beginning with the date for the time being specified in subsection (1), or(ii) after the period of two years beginning with the date on which this Act is passed, but”Member’s explanatory statement
This amendment prevents regulations under Clause 18 being made more than two years after Royal Assent.
Lord Callanan
(b) regulations made under section 23 which make provision by amending an Act or an Act of the Scottish Parliament,”.Member’s explanatory statement
This amendment and the Minister’s final amendment to Clause 24 provide for regulations under Clause 23 (consequential provision etc) which amend an Act or an Act of the Scottish Parliament to be subject to the made affirmative procedure.
“(4A) Where regulations cease to have effect as a result of subsection (3) that does not— (a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement
This amendment clarifies that if regulations under Clause 18 cease to have effect that does not affect anything previously done under or by virtue of the regulations or prevent the making of new regulations.
Member’s explanatory statement
See the statement for the Minister’s first amendment to Clause 24.
Lord Callanan
“( ) the need for the provision made by the regulations is urgent,”Member’s explanatory statement
This amendment makes urgency a condition of the exercise of the power in Clause 26.
Lord Callanan
“(i) after the period of one year beginning with the date for the time being specified in subsection (1), or(ii) after the period of two years beginning with the date on which this Act is passed, but”Member’s explanatory statement
This amendment prevents regulations under Clause 26 being made more than two years after Royal Assent.
Lord Callanan
Member’s explanatory statement
This amendment and the Minister’s final amendment to Clause 32 provide for regulations made by the Department for the Economy under Clause 31 (consequential provision etc) which amend an Act or Northern Ireland primary legislation to be subject to the made affirmative procedure in the Northern Ireland Assembly.
“(4A) Where regulations cease to have effect as a result of subsection (3) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement
This amendment clarifies that if regulations made by the Department for the Economy in Northern Ireland cease to have effect that does not affect anything previously done under or by virtue of the regulations or prevent the making of new regulations.
Member’s explanatory statement
See the statement for the Minister’s first amendment to Clause 32.
Lord Callanan
(b) regulations made under section 31 by the Secretary of State which make provision by amending an Act,”Member’s explanatory statement
This amendment and the Minister’s final amendment to Clause 33 provide for regulations made by the Secretary of State under Clause 31 (consequential provision etc) which amend an Act to be subject to the made affirmative procedure.
“(4A) Where regulations cease to have effect as a result of subsection (3) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement
This amendment clarifies that if regulations made by the Secretary of State cease to have effect that does not affect anything previously done under or by virtue of the regulations or prevent the making of new regulations.
Member’s explanatory statement
See the statement for the Minister’s first amendment to Clause 33.
Lord Callanan
Member’s explanatory statement
This amendment would mean that the power to make regulations under clause 39(1)(b) could be exercised only if the Secretary of State considered it reasonable to exercise the power to mitigate an effect of coronavirus.
“coronavirus” means severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2);”Member’s explanatory statement
This amendment is consequential on the first amendment to clause 39 in the name of Lord Callanan.
Lord Callanan
Member’s explanatory statement
This amendment would mean that the power to make regulations under Clause 40(1)(b) could be exercised only if the Department for the Economy in Northern Ireland considered it reasonable to exercise the power to mitigate an effect of coronavirus.
“coronavirus” means severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2);”Member’s explanatory statement
This amendment is consequential on the first amendment to Clause 40 in the name of Lord Callanan.
Lord Callanan
Member’s explanatory statement
This amendment changes Clause 41 so that provision that could formerly have been made by the negative resolution procedure now has to be made by the made affirmative procedure (or the affirmative procedure).
“(aa) provision under section A49A(1) of the Insolvency Act 1986 (moratorium: power to make provision in connection with pension schemes);”Member’s explanatory statement
This amendment ensures that, for the first six months, provision made under the power conferred by new section A49A(1) may be made by regulations that are subject to the made affirmative procedure.
“(b) “regulations that are subject to the made affirmative procedure” means regulations that—(i) are contained in a statutory instrument that must be laid before Parliament as soon as reasonably practicable after being made, and(ii) cease to have effect at the end of the period of 40 days beginning with the day on which the instrument is made, unless during that period the instrument is approved by a resolution of each House of Parliament.(6) In calculating the period of 40 days mentioned in subsection (5)(b)(ii), no account is to be taken of any time during which—(a) Parliament is dissolved or prorogued, or(b) both Houses of Parliament are adjourned for more than 4 days. (7) Where by virtue of this section the Secretary of State makes regulations that are subject to the made affirmative procedure and the regulations cease to have effect because they are not approved within the period mentioned in subsection (5)(b)(ii), the fact that the regulations cease to have effect does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement
This amendment defines “made affirmative procedure” for the purposes of the Minister’s first amendment to Clause 41.
Lord Callanan
Member’s explanatory statement
This amendment changes Clause 42 so that provision that could formerly have been made by the negative resolution procedure now has to be made by the made affirmative procedure (or the affirmative procedure).
“(b) “regulations that are subject to the made affirmative procedure” means regulations that—(i) are contained in a statutory instrument that must be laid before Senedd Cymru as soon as reasonably practicable after being made, and(ii) cease to have effect at the end of the period of 40 days beginning with the day on which the instrument is made, unless during that period the instrument is approved by a resolution of Senedd Cymru.(5) In calculating the period of 40 days mentioned in subsection (4)(b)(ii), no account is to be taken of any time during which Senedd Cymru is—(a) dissolved, or(b) in recess for more than 4 days.(6) Where by virtue of this section the Welsh Ministers make regulations that are subject to the made affirmative procedure and the regulations cease to have effect because they are not approved within the period mentioned in subsection (4)(b)(ii), the fact that the regulations cease to have effect does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement
This amendment defines “made affirmative procedure” for the purposes of the Minister’s other amendment to Clause 42.
Lord Callanan
Member’s explanatory statement
This amendment is needed in light of the Minister’s other amendment to Clause 43(1).
Member’s explanatory statement
This amendment changes clause 43 so that provision that could formerly have been made by the negative procedure now has to be made by the made affirmative procedure (or the affirmative procedure).
“(3) For the purposes of this section “regulations that are subject to the made affirmative procedure” means regulations that—(a) must be laid before the Scottish Parliament as soon as reasonably practicable after being made, and(b) cease to have effect at the end of the period of 40 days beginning with the day on which the regulations are made, unless during that period the regulations are approved by a resolution of the Scottish Parliament.(4) In calculating the period of 40 days mentioned in subsection (3)(b), no account is to be taken of any time during which the Scottish Parliament is—(a) dissolved, or(b) in recess for more than 4 days.(5) Where by virtue of this section the Scottish Ministers make regulations that are subject to the made affirmative procedure and the regulations cease to have effect because they are not approved within the period mentioned in subsection (3)(b), the fact that the regulations cease to have effect does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.(6) Section 30 of the Interpretation and Legislative Reform (Scotland) Act 2010 does not apply in relation to regulations that are subject to the made affirmative procedure by virtue of this section.”Member’s explanatory statement
This amendment defines “made affirmative procedure” for the purposes of the Minister’s first amendment to Clause 43.
Lord Callanan
“Modified procedure for regulations of Northern Ireland departments
(1) During the period of six months beginning with the day on which this section comes into force, any relevant provision that may be made by a Northern Ireland department by regulations that are subject to the affirmative resolution procedure may be made by regulations that are subject to the made affirmative procedure.(2) In subsection (1)“relevant provision” means—(a) provision under Article 13HA(1) of the Insolvency (Northern Ireland) Order 1989 (power to modify moratorium provisions in relation to certain companies);(b) provision under Article 13HAA(1) of that Order (moratorium: power to make provision in connection with pension schemes).(3) For the purposes of this section—(a) “regulations that are subject to the affirmative resolution procedure” means regulations that may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the Assembly; (b) “regulations that are subject to the made affirmative procedure” means regulations that—(i) must be laid before the Assembly as soon as reasonably practicable after being made, and(ii) cease to have effect at the end of the period of 40 days beginning with the day on which the regulations are made, unless during that period the regulations are approved by a resolution of the Assembly.(4) In calculating the period of 40 days mentioned in subsection (3)(b)(ii), no account is to be taken of any time during which the Assembly is—(a) dissolved,(b) in recess for more than 4 days, or(c) adjourned for more than 6 days.(5) Where by virtue of this section a Northern Ireland department makes regulations that are subject to the made affirmative procedure and the regulations cease to have effect because they are not approved within the period mentioned in subsection (3)(b)(ii), the fact that the regulations cease to have effect does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.(5) In this section “the Assembly” means the Northern Ireland Assembly.”Member’s explanatory statement
This amendment modifies the regulation-making procedure for certain regulations for the first six months.
“17A A company is excluded from being eligible unless, before the filing date, it has consulted all the persons who are the appropriate representatives of any of the employees who may be affected by the proposed moratorium or by any reasonably foreseeable consequences of it about those matters.”
Lord Stevenson of Balmacara [V]
My Lords, I listened very carefully to the Minister when he spoke at the start of the debate on the first group. I am grateful to him for spelling out the current position for employees in companies in difficulty, including the statutory safeguards on pay and allowances, what would happen in redundancy situation, and the protection for conditions during any moratorium period. I found that very helpful.
But the main thrust of his speech was to add further reassurances from the Dispatch Box on two issues. One was to let us know that the Government had decided that although there would be a statutory review of the new procedures brought in by the moratorium, to be done within five years, this would be brought forward to no more than three years in case there was a question of how employees were being treated. There was a confirmation that should it be discovered in the review that there were some negatives happening or any detriment to the position of employees, the Government would be prepared to bring forward primary legislation to resolve those if that was required. The second was to have consideration to whether or not—I am sorry, I have lost my notes. But I wish to put on the record that I am very grateful to the Government for their two concessions in this matter. As a result, I wish to withdraw the amendment.
Lord Callanan
Member’s explanatory statement
This amendment limits the Secretary of State’s power to amend new Schedule ZA1 so that it cannot be used to amend paragraph 2 (exclusion from eligibility for companies subject to moratorium or insolvency procedure etc).
Lord Callanan
(b) priority pre-moratorium debts (within the meaning given by section 174A).” Member’s explanatory statement
This amendment reflects the changes made by the Minister’s amendments to new section 174A of the Insolvency Act 1986 (on page 109 of the Bill).
Member’s explanatory statement
This amendment leaves out definitions that are no longer needed because of the Minister’s other amendment to page 107.
(2A) In subsection (2)(b) “priority pre-moratorium debt” means—(a) any pre-moratorium debt that is payable in respect of—(i) the monitor’s remuneration or expenses,(ii) goods or services supplied during the moratorium,(iii) rent in respect of a period during the moratorium, or(iv) wages or salary arising under a contract of employment, so far as relating to a period of employment before or during the moratorium,(b) any pre-moratorium debt that—(i) consists of a liability to make a redundancy payment, and(ii) fell due before or during the moratorium, and(c) any pre-moratorium debt that—(i) arises under a contract or other instrument involving financial services,(ii) fell due before or during the moratorium, and(iii) is not relevant accelerated debt (see subsection (2B)).(2B) For the purposes of subsection (2A)(c)—“relevant accelerated debt” means any pre-moratorium debt that fell due during the relevant period by reason of the operation of, or the exercise of rights under, an acceleration or early termination clause in a contract or other instrument involving financial services;“the relevant period” means the period—(a) beginning with the day on which the statement under section A6(1)(e) is made, and (b) ending with the last day of the moratorium.”Member’s explanatory statement
This amendment clarifies which pre-moratorium debts get priority for the purposes of new section 174A(2) of the Insolvency Act 1986. Among other things, it excludes certain debts that fall due during the moratorium because they are accelerated (for example, because the creditor exercises a contractual right to require immediate payment in full).
“(3A) The Secretary of State may by regulations made by statutory instrument amend this section for the purposes of changing the definition of “moratorium debt” or “priority pre-moratorium debt” in this section.(3B) Regulations under subsection (3A) may make consequential, supplementary, incidental or transitional provision or savings.(3C) A statutory instrument containing regulations under subsection (3A) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member’s explanatory statement
This amendment confers power on the Secretary of State to change the definitions of “moratorium debt” and “priority pre-moratorium debt” for the purposes of new section 174A(2) of the Insolvency Act 1986.
“(5) Any rules made under section A18(4) (meaning of supply of goods or services) apply also for the purposes of subsection (2A)(a)(ii) of this section.(6) In this section—“acceleration or early termination clause”, in relation to a contract or other instrument involving financial services, means a provision of the contract or other instrument—(a) under which, on the happening of an event—(i) a debt or other liability falls due earlier than it otherwise would, or(ii) a debt or other liability is terminated and replaced by another debt or liability, or(b) which confers on a party a right which, if exercised, will result in —(i) a debt or other liability falling due earlier than it otherwise would, or(ii) a debt or other liability being terminated and replaced by another debt or liability;“contract or other instrument involving financial services” has the same meaning as it has for the purposes of section A18 (see Schedule ZA2);“monitor’s remuneration or expenses” has the meaning given by section A18;“moratorium debt” has the meaning given by section A51;“pre-moratorium debt” has the meaning given by section A51;“redundancy payment” has the meaning given by section A18;“wages or salary” has the meaning given by section A18.”Member’s explanatory statement
This amendment defines expressions used in the Minister’s first amendment to page 109.
(b) priority pre-moratorium debts (within the meaning given by section 174A).”Member’s explanatory statement
This amendment reflects the changes made by the Minister’s amendments to new section 174A of the Insolvency Act 1986 (on page 109 of the Bill).
Member’s explanatory statement
This amendment is consequential on the Minister’s first amendment to page 111.
Member’s explanatory statement
This amendment leaves out definitions that are no longer needed because of the Minister’s first amendment to page 111.
Lord Callanan
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of Schedule 4 so that the period ends with 30 September 2020.
Lord Callanan
Member’s explanatory statement
This amendment limits the Department’s power to amend new Schedule ZA1 so that it cannot be used to amend paragraph 2 (exclusion from eligibility for companies subject to moratorium or insolvency procedure etc).
Lord Callanan
Member’s explanatory statement
This amendment paves the way for the Minister’s amendments to new Article 148A of the Insolvency (Northern Ireland) Order 1989 (on page 160 of the Bill).
(b) priority pre-moratorium debts (within the meaning given by Article 148A);”Member’s explanatory statement
This amendment reflects the changes made by the Minister’s amendments to new Article 148A of the Insolvency (Northern Ireland) Order 1989 (on page 160 of the Bill).
Member’s explanatory statement
This amendment leaves out definitions that are no longer needed because of the Minister’s second amendment to page 158.
(2A) In paragraph (2)(b) “priority pre-moratorium debt” means—(a) any pre-moratorium debt that is payable in respect of—(i) the monitor’s remuneration or expenses,(ii) goods or services supplied during the moratorium,(iii) rent in respect of a period during the moratorium, or(iv) wages or salary arising under a contract of employment, so far as relating to a period of employment before or during the moratorium,(b) any pre-moratorium debt that—(i) consists of a liability to make a redundancy payment, and(ii) fell due before or during the moratorium, and(c) any pre-moratorium debt that— (i) arises under a contract or other instrument involving financial services,(ii) fell due before or during the moratorium, and(iii) is not relevant accelerated debt (see paragraph (2B)).(2B) For the purposes of paragraph (2A)(c)—“relevant accelerated debt” means any pre-moratorium debt that fell due during the relevant period by reason of the operation of, or the exercise of rights under, an acceleration or early termination clause in a contract or other instrument involving financial services;“the relevant period” means the period—(a) beginning with the day on which the statement under Article 13BC(1)(e) is made, and(b) ending with the last day of the moratorium.”Member’s explanatory statement
This amendment clarifies which pre-moratorium debts get priority for the purposes of new Article 148A(2) of the Insolvency (Northern Ireland) Order 1989. Among other things, it excludes certain debts that fall due during the moratorium because they are accelerated (for example, because the creditor exercises a contractual right to require immediate payment in full).
“(3A) Regulations may amend this Article for the purposes of changing the definition of “moratorium debt” or “priority pre-moratorium debt” in this Article.(3B) Regulations under paragraph (3A) may make consequential, supplementary, incidental or transitional provision or savings.(3C) Regulations may not be made under paragraph (3A) unless a draft of the regulations has been laid before, and approved by a resolution of, the Assembly.”Member’s explanatory statement
This amendment confers power on the Department for the Economy in Northern Ireland to change the definitions of “moratorium debt” and “priority pre-moratorium debt” for the purposes of new Article 148A(2) of the Insolvency (Northern Ireland) Order 1989.
“(5) Any rules made under Article 13D(4) (meaning of supply of goods or services) apply also for the purposes of paragraph (2A)(a)(ii) of this Article.(6) In this Article—“acceleration or early termination clause”, in relation to a contract or other instrument involving financial services, means a provision of the contract or other instrument—(a) under which, on the happening of an event—(i) a debt or other liability falls due earlier than it otherwise would, or (ii) a debt or other liability is terminated and replaced by another debt or liability, or(b) which confers on a party a right which, if exercised, will result in —(i) a debt or other liability falling due earlier than it otherwise would, or(ii) a debt or other liability being terminated and replaced by another debt or liability;“contract or other instrument involving financial services” has the same meaning as it has for the purposes of Article 13D (see Schedule ZA2);“monitor’s remuneration or expenses” has the meaning given by Article 13D;“moratorium debt” has the meaning given by Article 13HC;“pre-moratorium debt” has the meaning given by Article 13HC; “redundancy payment” has the meaning given by Article 13D;“wages or salary” has the meaning given by Article 13D.”Member’s explanatory statement
This amendment defines expressions used in the Minister’s first amendment to page 160.
(b) priority pre-moratorium debts (within the meaning given by Article 148A).”Member’s explanatory statement
This amendment reflects the changes made by the Minister’s amendments to new Article 148A of the Insolvency (Northern Ireland) Order 1989 (on page 160 of the Bill).
Member’s explanatory statement
This amendment is consequential on the Minister’s first amendment to page 162.
Member’s explanatory statement
This amendment leaves out definitions that are no longer needed because of the Minister’s first amendment to page 162.
Lord Callanan
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of Schedule 8 so that the period ends with 30 September 2020.
Lord Callanan
Member’s explanatory statement
See the explanatory statement for the Minister’s second amendment on page 186 of the Bill.
(a) in the case of a moratorium under Part A1 of the Insolvency Act 1986, has the same meaning as in section 174A of that Act;(b) in the case of a moratorium under Part 1A of the Insolvency (Northern Ireland) Order 1989, has the same meaning as in Article 148A of that Order;“priority pre-moratorium debt”—(a) in the case of a moratorium under Part A1 of the Insolvency Act 1986, has the same meaning as in section 174A of that Act; (b) in the case of a moratorium under Part 1A of the Insolvency (Northern Ireland) Order 1989, has the same meaning as in Article 148A of that Order.”Member’s explanatory statement
The Minister’s amendments on page 186 of the Bill provide that the creditors to whom new section 901H of the Companies Act 2006 applies are those in respect of “moratorium debts” and “priority pre-moratorium debts” within the meaning of section 174A of the Insolvency Act 1986 or Article 148A of the Insolvency (Northern Ireland) Order 1989 (which provide for those kinds of debt to have priority in a winding-up).
“901HA Pension schemes(1) In a case where the company in respect of which a compromise or arrangement is proposed is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, any notice or other document required to be sent to a creditor of the company must also be sent to the Pensions Regulator.(2) In a case where the company in respect of which a compromise or arrangement is proposed is an employer in respect of an eligible scheme, any notice or other document required to be sent to a creditor of the company must also be sent to the Board of the Pension Protection Fund (“the Board”).(3) The Secretary of State may by regulations provide that, in a case where—(a) the company in respect of which a compromise or arrangement is proposed is an employer in respect of an eligible scheme, and(b) the trustees or managers of the scheme are a creditor of the company,the Board may exercise any rights, or any rights of a specified description, that are exercisable under this Part by the trustees or managers as a creditor of the company.(4) Regulations under this section may provide that the Board may exercise any such rights—(a) to the exclusion of the trustees or managers of the scheme, or(b) in addition to the exercise of those rights by the trustees or managers of the scheme.(5) Regulations under this section—(a) may specify conditions that must be met before the Board may exercise any such rights;(b) may provide for any such rights to be exercisable by the Board for a specified period;(c) may make provision in connection with any such rights ceasing to be so exercisable at the end of such a period.(6) Regulations under this section are subject to affirmative resolution procedure (but see subsection (7)).(7) During the period of six months beginning with the day on which this section comes into force, regulations under this section are subject to approval after being made (and subsection (6) does not apply). (8) For the purposes of subsection (7), section 1291 has effect as if any reference in that section to a period of 28 days were to a period of 40 days.(9) In this section—“eligible scheme” means any pension scheme that is an eligible scheme for the purposes of section 126 of the Pensions Act 2004 or Article 110 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1));“employer”— (a) in subsection (1), means an employer within the meaning of section 318(1) of the Pensions Act 2004 or Article 2(2) of the Pensions (Northern Ireland) Order 2005;(b) in subsections (2) and (3)—(i) in the case of a pension scheme that is an eligible scheme for the purposes of section 126 of the Pensions Act 2004, has the same meaning as it has for the purposes of Part 2 of that Act (see section 318(1) and (4) of that Act);(ii) in the case of a pension scheme that is an eligible scheme for the purposes of Article 110 of the Pensions (Northern Ireland) Order 2005, has the same meaning as it has for the purposes of Part 3 of that Order (see Article 2(2) and (5) of that Order);“money purchase scheme” means a pension scheme that is a money purchase scheme for the purposes of the Pension Schemes Act 1993 (see section 181(1) of that Act) or the Pension Schemes (Northern Ireland) Act 1993 (see section 176(1) of that Act);“occupational pension scheme” and “pension scheme” have the meaning given by section 1 of the Pension Schemes Act 1993;“specified” means specified in regulations under this section.”Member’s explanatory statement
This amendment would in certain circumstances require information provided to creditors under Part 26A of the Companies Act 2006 also to be provided to the Pensions Regulator and the Board of the Pension Protection Fund. It also enables the Board to be given the power to exercise rights which could be exercised by the trustees or managers of a pension scheme in proceedings under that Part, such as the right to vote on the proposed compromise or arrangement.
Member’s explanatory statement
See the explanatory statement for the Minister’s second amendment on page 198 of the Bill.
(a) in the case of a moratorium under Part A1 of the Insolvency Act 1986, has the same meaning as in section 174A of that Act;(b) in the case of a moratorium under Part 1A of the Insolvency (Northern Ireland) Order 1989, has the same meaning as in Article 148A of that Order;“priority pre-moratorium debt”—(a) in the case of a moratorium under Part A1 of the Insolvency Act 1986, has the same meaning as in section 174A of that Act;(b) in the case of a moratorium under Part 1A of the Insolvency (Northern Ireland) Order 1989, has the same meaning as in Article 148A of that Order.””Member’s explanatory statement
The Minister’s amendments on page 198 of the Bill provide that the creditors to whom new section 899A of the Companies Act 2006 applies are those in respect of “moratorium debts” and “priority pre-moratorium debts” within the meaning of section 174A of the Insolvency Act 1986 or Article 148A of the Insolvency (Northern Ireland) Order 1989 (which provide for those kinds of debt to have priority in a winding-up).
Lord Callanan
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of Part 1 of Schedule 10 so that the period ends with 30 September 2020.
Lord Callanan
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of Part 2 of Schedule 10 so that the period ends with 30 September 2020.
Lord Callanan
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of Part 1 of Schedule 11 so that the period ends with 30 September 2020.
Lord Callanan
Member’s explanatory statement
This amendment alters the definition of the “relevant period” that applies for the purposes of Part 2 of Schedule 11 so that the period ends with 30 September 2020.
Lord Callanan
Member’s explanatory statement
This amendment is consequential on the Minister’s other amendment to Schedule 14
“(3) A statutory instrument containing regulations made by the Secretary of State under paragraph 2(2)(b) of this Schedule or containing regulations made by the Secretary of State or the Treasury under paragraph 4 or 6 of this Schedule must be laid before Parliament as soon as reasonably practicable after being made. (4) Sub-paragraph (3) does not apply if a draft of the statutory instrument has been laid before and approved by a resolution of each House of Parliament.(5) Regulations contained in a statutory instrument laid before Parliament by virtue of sub-paragraph (3) cease to have effect at the end of the period of 40 days beginning with the day on which the instrument is made, unless during that period the instrument is approved by a resolution of each House of Parliament.(6) In calculating the period of 40 days, no account is to be taken of any time during which—(a) Parliament is dissolved or prorogued, or(b) both Houses of Parliament are adjourned for more that 4 days.(7) Where regulations cease to have effect as a result of sub-paragraph (5) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.7A_(1) Regulations made by the Scottish Ministers under paragraph 2(2)(a) of this Schedule are subject to the negative procedure (see section 28 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10)).(2) Regulations made by the Scottish Ministers under paragraph 2(2)(b), 4 or 6 of this Schedule must be laid before the Scottish Parliament as soon as reasonably practicable after being made.(3) Sub-paragraph (2) does not apply if the regulations have been subject to the affirmative procedure (see section 29 of the Interpretation and Legislative Reform (Scotland) Act 2010).(4) Regulations laid before the Scottish Parliament by virtue of sub- paragraph (2) cease to have effect at the end of the period of 40 days beginning with the day on which they are made, unless during that period the regulations are approved by a resolution of the Scottish Parliament.(5) In calculating the period of 40 days, no account is to be taken of any time during which the Scottish Parliament is—(a) dissolved, or(b) in recess for more than 4 days.(6) Where regulations cease to have effect as a result of sub-paragraph (4) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.(7) Section 30 of the Interpretation and Legislative Reform (Scotland) Act 2010 does not apply in relation to regulations to which sub-paragraph (2) applies.7B_(1) Regulations made by the Department for the Economy in Northern Ireland under paragraph 2(2)(a) of this Schedule are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).(2) Regulations made by the Department for the Economy in Northern Ireland under paragraph 2(2)(b), 4 or 6 of this Schedule must be laid before the Assembly as soon as reasonably practicable after being made. (3) Sub-paragraph (2) does not apply if a draft of the regulations has been laid before, and approved by a resolution of, the Assembly. (4) Section 41(3) of the Interpretation Act (Northern Ireland) 1954 applies for the purposes of sub-paragraph (3) in relation to the laying of a draft as it applies in relation to the laying of a statutory document under an enactment.(5) Regulations laid before the Assembly by virtue of sub-paragraph (2) cease to have effect at the end of the period of 40 days beginning with the day on which the regulations are made, unless during that period the regulations are approved by a resolution of the Assembly.(6) In calculating the period of 40 days, no account is to be taken of any time during which the Assembly is—(a) dissolved,(b) in recess for more than 4 days, or(c) adjourned for more than 6 days.(7) Where regulations cease to have effect as a result of sub-paragraph (5) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.(8) A power of the Department for the Economy in Northern Ireland to make regulations under this Schedule is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).(9) In this paragraph “the Assembly” means the Northern Ireland Assembly.”Member’s explanatory statement
This amendment changes Schedule 14 so that regulations under paragraph 2(2)(b), 4 or 6 of the Schedule that could formerly have been made by a negative procedure will be subject to a made affirmative procedure (or an affirmative procedure).
Corporate Insolvency and Governance Bill
Tuesday 23rd June 2020
(3 years, 10 months ago)
Lords ChamberRead Full debate Corporate Insolvency and Governance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 114-I Marshalled list for Report - (18 Jun 2020)
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, first, I thank the House of Lords Public Bill Office and the House clerks for their support and their extremely hard work in ensuring that this emergency Bill could be expedited through the House to support businesses as a matter of urgency in these unprecedented times.
Secondly, I place on record my thanks to the Bill team, Andy Ormerod-Cloke, Muneera Lula, Jess Bradbury and all the team, both in BEIS and in the Insolvency Service, who have worked so hard on the Bill. I am sure Members will appreciate the untold hours that went in on evenings and weekends to assist in the progress of this legislation and to provide help and guidance to me, my noble friends Lady Bloomfield and Lord Howe and many other noble Lords who we have spoken to and consulted over the last couple of weeks on all sides of the House. I am grateful to all Members for their contributions. The Bill team and the Insolvency Service did a splendid job operating in, let us not forget, extremely difficult circumstances. They can be proud of their work and they are a credit to the Civil Service.
I also thank my private office team, Marty and Jenny, for ably assisting me in co-ordinating the various bits of government to come together on the Bill. I pay tribute to the Opposition spokesmen: the noble Lords, Lord Stevenson and Lord Fox. This made a pleasant change from my previous job, piloting the Brexit legislation through, where, as Members can imagine, there was no common ground whatever. This has been an historic day: I have actually won three votes in the House, which is the quite amazing pinnacle of my ministerial career. It can only be downhill from here. I am grateful to them for their constructive engagement. They have acted responsibly, recognising that this is emergency legislation, and have worked with us to improve the legislation where that was required. On behalf of the Government, we have been pleased to accept the many constructive contributions. The Bill leaves this House in a much better and improved form than when it entered it. We have been responsible and have acted where necessary, and I hope Members will agree that the Government have responded to their concerns.
I mentioned them earlier but I the other members of the ministerial team—my noble friends Lady Bloomfield and Lord Howe—who have assisted me in pushing this measure through. As a result of this legislation, I hope that many otherwise viable companies will no longer face the threat of insolvency. The measures that the Bill introduces will give our businesses the vital support that they need to keep themselves afloat, thereby preserving jobs and maintaining productive capacity, enabling the foundations to be late for this country’s economic recovery.
Once again, I thank noble Lords for their scrutiny of the Bill. It has, as I said, been much improved thanks to the amendments that have been made during its passage. I hope Members will think that the Government played a constructive role in reacting to many of the concerns they have raised. I hope that the other place will promptly accept these amendments so that the Bill can come into force as a matter of urgency. I beg to move.
Lord Fox
My Lords, the Minister was right that this is an important Bill because it is about people’s jobs, livelihoods and future prosperity. I think we all agreed from the outset that that was the objective here, and in many respects we have managed to fulfil it. I join the Minister in thanking the Public Bill Office, which as usual has been extremely helpful when it comes to marshalling our amendments.
I especially pick out the Bill team. Normally when I look at the Box over there, there is a team looking tired, wan and reasonably pleased that their job is reaching the end. They must have had some very long days. I assume that the Bill team are somewhere out there in the ether, so I thank them for their work.
I thank my own team: my colleagues who have sat through this process, on the Benches and virtually, and Sarah Pughe, who has kept us more or less on the straight and narrow. I thank my opposite number the noble Lord, Lord Stevenson, and the ministerial team—the noble Lord, Lord Callanan, the noble Earl, Lord Howe, and the noble Baroness, Lady Bloomfield—for their open and cheerful approach to the Bill. I think we got a glimpse of why the noble Lord was cheerful: this Bill is nowhere near as bad as what he has just been doing.
That is true, but it was still a difficult Bill. It is a big Bill of mixed intent, in that some of it is permanent and some of it is not, and it was an accelerated process. It has not been easy, and of course we leave here wishing that things were different from the way they are. This feels like the end of something but I suspect, given the powers and the intent that the Government have to trim, modify and improve the Bill, it may be a question not of “Farewell” but rather of “See you later”.
Lord Stevenson of Balmacara [V]
My Lords, I apologise for my complete blankness when coming to the end of my peroration on Amendment 75. For the record, the second very important concession made by the Minister, who was very kind in not picking me up on not being able to remember it, was that the new monitor position will be strengthened in terms of guidance so that directors will have a responsibility for informing employees about the moratorium arrangements and reassuring them about their conditions in future. I thank him for that as well. If there is a way in which Hansard can reinsert that into my original statement then I would be more than grateful, but I am sure that is probably not allowed.
I join others in thanking all concerned for getting us through this process. It has been very interesting to do it. We started with a lot of meetings with Ministers, which was very good because the ground was clearly laid out, so we enjoyed that. We were introduced to officials, from whom we have had superb support through the whole process. I join the Minister in saying that they are a credit to the Civil Service, working in extraordinary conditions and coming up with the goods all the time.
I thank the noble Lord, Lord Fox, and his colleagues for their support. It is good to find that people have similar views about issues. It is sometimes hard to find the exact point at which we should work together but we have managed to do so despite the conditions. Thanks should also be said to the House officials for allowing us to operate in a hybrid House in a way that those who have been here for more than a few years would probably have thought impossible, given the difficulties involved and the changes required—but here we are. They have given us three and a half days of work and they have been superb in making sure that we had the service required in order to contribute. I have been doing this remotely throughout while others have been present, and even remotely it has been a satisfying situation.
All Bills are a trial of stamina, this one probably more than most. I think we all share a sense of exhaustion, having reached its final moments. It is interesting that having to do this in an accelerated way has also picked up a lot of issues that will need further work. I hope the various committees and other agencies in the House who are watching this will learn the lessons that have to be learned about how to do emergency legislation and accelerated legislation, what can be done well and what needs a bit more time spent on it.
Finally, it is a curious feature of the hybrid House that staring for hours into tiny screens and trying to talk to people through electronic devices that constantly let us down seems to build a much stronger working relationship. I have enjoyed this time very much. I have enjoyed working with everyone concerned, including my staff, Dan Harris, my Whip, Chris—my noble friend Lord Lennie—and others who have supported us. I have also enjoyed working with Ministers and others from across the House. Long may it last.
Royal Assent
Thursday 25th June 2020
(3 years, 10 months ago)
Lords ChamberRead Full debate Read Hansard Text Amendment Paper: HL Bill 114-I Marshalled list for Report - (18 Jun 2020)
Corporate Insolvency and Governance Bill
Thursday 25th June 2020
(3 years, 10 months ago)
Commons ChamberRead Full debate Corporate Insolvency and Governance Act 2020 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 114-I Marshalled list for Report - (18 Jun 2020)
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
I beg to move, That this House agrees with Lords amendment 1.
Mr Deputy Speaker (Mr Nigel Evans)
With this we may take Lords amendments 2 to 116.
Paul Scully
The Corporate Insolvency and Governance Bill has been a demonstration of what can be achieved in the best interests of businesses, jobs and the country’s economic future when there is collaborative work across both sides of the House. I am grateful to hon. and right hon. Members for the constructive way in which the Opposition have engaged with the Bill, both in this House and the other place.
Over the past three months, this country has faced the unprecedented hardship of needing to adhere to stringent social distancing measures due to the covid-19 pandemic, where Government had no choice but to order businesses to close their doors to safeguard the nation’s health. We recognise the huge sacrifices that has entailed, and my right hon. Friend the Chancellor has provided unprecedented economic support to businesses and workers across the country to help them make it through this challenging time.
Some UK businesses have been hit hard, with many unable to trade or facing a significant short-term reduction in demand for goods and services. As a result, many otherwise viable companies face the threat of insolvency.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
With regard to Lords amendment 75, which extends the temporary provisions to 30 September, the Minister is absolutely right that a lot of businesses can survive this crisis, but they need these measures in place. They also need the packages of support from the Treasury alongside the legislative changes. The clock is ticking for many, particularly in the theatre and entertainment industry, the steel industry and others affected in my constituency. Does he agree that we need to see financial packages too?
Paul Scully
I agree with the hon. Gentleman that it is important that we remain flexible. We continue to work with businesses from all sectors to ensure that we can get to a point where we can work through the gears to get a full economic recovery over time. That will mean support from the Government in all manner of ways, which we are considering.
Sir Edward Leigh (Gainsborough) (Con)
We have no idea what will happen—there could be a second lockdown or other things; we do not know. Will the Minister comment on the necessity or value of including in the Bill a review procedure, which, if something changes, would allow the Government to be fleet of foot in aiding businesses? That particularly applies to those who lose their premises because of the difficult economic situation and who may find it very difficult to find new ones.
Paul Scully
I am grateful to my right hon. Friend for that intervention. He will note that the Government have extended the moratorium on the forfeiture of leases due to covid-19 debts to 30 September, with which the amendments in the Bill have become aligned. In my conversations with retail and hospitality in particular, but not solely with them, I have been exercised by property and the balance between landlord and tenant. We must keep an eye on that.
Jim Shannon (Strangford) (DUP)
I recognise that what the Minister is bringing forward is important. We thank the Government and him for what they are doing. In relation to circumstances in the regional devolved Administrations—the Northern Ireland Assembly, the Scottish Parliament and the Welsh Assembly—there may be peculiarities in those systems that mean businesses are particularly under threat or having problems specific to those regions. Does the Minister feel that within the Bill we can get help through the devolved Administrations, and in Northern Ireland through the Assembly, to those businesses and, in particular, tourism?
Paul Scully
I agree with the hon. Gentleman that it is so important that we work with all parts of the nation and all the devolved Administrations, which we do regularly. My colleague my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi) has regular conversations from our Department, and other Departments liaise closely with the devolved Administrations to ensure that local economies are protected, as well as looking at the overall national picture.
The measures that the Bill introduces will give our businesses the vital support they need to keep afloat, preserving jobs, maintaining productive capacity and enabling the foundations to be laid for the country’s economic recovery. Saving lives and livelihoods is at the heart of what we are seeking to achieve. Measures such as the new moratorium and restructuring plan, together with a prohibition on contractual termination clauses, will help more businesses in future to survive rather than become insolvent. Many of the permanent measures have been improved through scrutiny in the other place, and I will set out some details of the amendments that the Government have brought forward to ensure that the measures work as intended.
I turn first to the financial services super priority amendments. The Government want to prevent firms gaming the system through a moratorium. Our amendments seek to disincentivise financial services creditors from seeking to accelerate their pre-moratorium debt solely to benefit from super priority should the company fail, or to obtain protection from compromise if a restructuring proposal was put to them. The amendments exclude pre-moratorium financial services debts from having super priority status in a subsequent administration or liquidation where the financial services debt has been accelerated for payment during the moratorium. That ensures that the correct incentives are in place for the moratorium to work effectively and not be brought to an end prematurely.
On amendments relating to pensions, the aim of the measures in the Bill is to rescue a company, which is ultimately the best outcome for its pension scheme. Nevertheless, the Government have been alive to the concern that the new procedures could result in a pension scheme being disadvantaged as an unsecured creditor of the company. As a result, we agreed that there is a need to build in specific protections. Amendments made in the other place ensure that the pensions regulator and the Pension Protection Fund get appropriate information in the case of both a moratorium and a restructuring plan and that the PPF can challenge through the courts, the directors and the monitor of a company in a moratorium. There is also a regulation-making power, which will allow the PPF to be given creditor rights in both procedures in certain circumstances. I hope that hon. and right hon. Members will agree that these are important and fair amendments to the Bill.
We have also made amendments to the temporary measures in the Bill. These temporary measures allow businesses to focus on what is important for their survival through this extraordinary period, rather than having to respond to aggressive creditor actions, or struggle with statutory filing or meeting requirements during the disruption. The amendments to the temporary insolvency provisions in the Bill extend the life of those provisions beyond what was proposed when the Bill first came to the House. They will now expire, as I have said, on 30 September.
It is already clear that businesses will need these measures in place for longer than we first anticipated, and we brought forward amendments in the other place to take account of that. The provisions retain the capacity to be extended further through a regulation-making power should it be required, and the affirmative procedure will apply to such regulations.
Amendments have been made in the Bill in relation to pre-pack sales in administrations. Pre-packs are a valuable tool for saving businesses and jobs. However, concerns have been raised about the lack of scrutiny of them. The amendments reinstate a power that had elapsed earlier this year for the Government to regulate pre-pack sales in administrations to connected parties. The Government will look carefully at pre-packs and I can inform the House that a commitment was made by my ministerial colleague, Lord Callanan, to review current practices in the summer before making any decision on regulatory changes.
Finally, a number of technical amendments have been made to the Bill where it was judged necessary. These include changes that will restrict the period for which certain powers have been given in the Bill that will be available to Ministers, changes to clarify the intended effect of the legislation, and changes which place a condition on the use of some powers. We have ensured that there is appropriate parliamentary scrutiny of any regulation made under the Bill, as well as appropriate safeguards on these powers. Where they relate to powers for a Scottish or Welsh Minister or a Northern Ireland Department, the corresponding change has been made to ensure equal scrutiny for all the Parliaments of the UK.
This Bill has been improved by the scrutiny of the House of Lords Delegated Powers and Regulatory Reform Committee, as well as by the incredible work of the Government’s own parliamentary counsel and their legal advisers. I hope that the House will agree that making good, accurate, appropriately balanced and clear legislation is very much in the interests of all, not least of businesses that rely on this legal clarity. I am confident that we have now achieved that in this package, which we have, nevertheless, brought forward as quickly as possible to respond to the covid emergency. Taken together, these amendments improve this important and much-needed Bill. The debates and discussions in this House, as well as in the other place, have shown quite what this Parliament can achieve, even if socially distanced, when we share that common aim to save and support businesses in this emergency context. I therefore call on Members to support all the Lords amendments.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
I want to start by echoing the constructive tone of the Minister and thanking everyone, both in this place and the other place, who has been involved in the scrutiny of the Bill. I also want to thank the Minister specifically for how he and his colleagues have engaged with us on this Bill and listened to the concerns we have had as it has progressed. We on the Labour Benches welcome the amendments that the Government have brought forward, which improve and strengthen the Bill in some important regards. As we have said previously, this is just one of the measures that we hope will safeguard businesses and livelihoods through this crisis. Our objective as the Opposition is to be constructive and to ensure that businesses get the support they need now and in the longer term, and that the number of insolvencies over coming weeks and months is as few as possible. We back this Bill, but we are clear that it is a last resort for many businesses and that there is much, much more for the Government to do now—now—to support businesses, safeguard our economy and protect jobs and livelihoods, so that the measures passed today only have to be used in a limited number of companies.
Stephen Doughty
I entirely endorse the point my hon. Friend is making, particularly with regard to pension schemes, because we have seen the tragedy of where this has gone wrong, such as the Allied Steel and Wire pensions scandal in my constituency, which is still affecting people today, years afterwards. Does she agree that we need to take some of the lessons from this process into protections for pension schemes and pensioners, who are expecting, having paid in, that they will get out in due course?
Chi Onwurah
I thank my hon. Friend for that extremely constructive and to-the-point intervention. We absolutely need to learn from this process, and we also need to ensure that not only the mistakes but the injustices of the past are not repeated, particularly now, when the economy and so many workers and pensioners are so vulnerable.
First, I hope that Ministers will learn from the experience of passing this legislation in such a hurried manner, with a mixture of permanent and temporary measures. While we understand the need for speed with this Bill, it is clear that there have been problems in combining temporary changes with permanent reforms that have been a long time coming and the lack of time for proper scrutiny. That point has been strongly voiced in the other place, and we hope that Ministers will bear this in mind when introducing complex permanent changes along with temporary measures.
Secondly, the ranking of priority debts in insolvency cases has not been changed in a number of years and concerns have been raised that this is out of date. There is no mention of FinTech or some of the new complex ways in which firms finance themselves. If further insolvency changes are planned by Ministers, they must be relevant to where the world is now.
Thirdly, the interaction between pension funds and insolvencies is very complicated, particularly around defined pension schemes. That needs to be looked at afresh. Fourthly, the lack of mention of employees in the whole Bill is a complete oversight, which is why we argued for greater recognition of, and voice for, employees during the passage of the Bill. Any further changes to insolvency and corporate governance legislation must consider how workers can be better included. Finally, there are clearly issues, as the Minister has raised, around pre-pack. They will need to be resolved.
We are pleased that we have been able to work so constructively with the Government to pass this important legislation to support business through this crisis. We are grateful for the listening ear of Ministers. We hope that this legislation will save businesses threatened with becoming insolvent through this crisis. We will keep a close eye on how the measures are implemented, and we hope Ministers will do the same.
Richard Fuller (North East Bedfordshire) (Con)
I draw the House’s attention to my entry in the Register of Members’ Financial Interests and in particular to my roles as a director of companies.
Like the Opposition, I welcome the changes that the Government are accepting in the Bill today. I have listened to a couple of interventions from the Opposition Benches, with their strong support for Government measures to support the economy, and that is emblematic of how successful they have been. However, I would just gently warn my hon. Friend the Minister that we have made great progress so far, but there are issues, as we emerge, about how those programmes are helping certain people, while other people are not receiving that support. We need to get the economy going back to normal business principles as quickly as possible, not seek to extend Government intervention unnecessarily or for too long.
This Bill is a very timely Bill and it is a good Bill. As the shadow Minister said, there is a mixture of short and long-term issues here, but getting this on the books is really rather important for the market. May I ask the Minister, building on some other comments about the changes in the role of the Pensions Regulator and the PPF, whether he sees this as part of a longer-term view of the Government about the role of pensions regulators in insolvency, and whether this is an indication of something that may outlast and be outwith any short-term changes? I would be interested in his perspectives on that.
I am not sure if the Bill continues to relate to the primacy of HMRC as a creditor in insolvencies, but I would be interested if the Minister has any observations on that. I know that, for many businesses when they are trying to seek resolution in insolvency, HMRC can prove to be one of the most difficult creditors to deal with—and that is putting it perhaps a little lightly. So do the Government have the intention of providing, or does the Treasury have any intention of providing, any guidance on how HMRC may be treating its obligations during this particular period? For many companies, that would be a welcome piece of information as they go through what may otherwise be very difficult periods.
May I ask the Minister about the extension to 30 September? That seems to be a very sensible change, but may I ask him about what happens in the event that there is a repeat lockdown that is a national lockdown? He has talked a bit about an affirmative decision here. That, it seems to me, is perhaps a bit more focused than that. Perhaps more tellingly, what happens in the instance where there is a localised lockdown in a particular county or a particular region that affects businesses there and they go insolvent? What happens to those particular businesses? I would be interested to see if the Minister has some thoughts on that.
My final observation, Mr Deputy Speaker—and you, with your great experience, may know this too—is that frequently measures that come into this House that are seen as short-term measures have a habit of sticking around on the statute book. So could I have, on the sunny-side view of the recovery of the economy, an absolute assurance from the Government that it is their intention, as these things sit, as the economy recovers, that they will implement the sunset clause, and they will come forward so that we can enable businesses to go back to the longer-term framework, some of which is in this Bill, for managing corporate insolvency?
Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)
Can I also thank the Minister for the collaborative and refreshing way, given his Government’s record, of engaging across the Benches to take this legislation through? I will come to my constructive criticisms in due course.
The areas I want to expand on are, basically, that we accept the Lords amendments and, within that, seek assurances from the Minister, his Secretary of State and his Government that they will work with the trade unions to ensure that workers are adequately protected, acknowledging that, while the Bill is a welcome step, the help it will give firms to get through the covid-19 crisis is going to be a drop in the ocean of the challenges they face. If this Tory Government are serious about reducing insolvency, they need to do much more. They should then support the Scottish National party’s amendments to the Finance Bill to prevent HMRC’s vulture powers from taking effect.
We welcome the technical changes made through the Lords amendments, not least the fact that the Scottish Parliament can play its full role in matters relating to clause 43. That is extremely welcome. It is also welcome to see the Government make concessions to Lord Stephen to ensure that directors will have responsibility for informing employees about moratorium arrangements and reassuring them about their conditions in the future. The Minister and the Government must provide assurances that they will continue to engage with trade unions and give an unequivocal guarantee that workers’ rights will not diminish as a result of the Bill.
The hon. Member for Newcastle upon Tyne Central (Chi Onwurah) was very kind in her criticisms. I am going to be a bit more direct. The swathes of Government amendments required in the Lords are indicative of the Government’s ongoing failure to grasp the details of the measures they propose—that is notwithstanding the very good engagement I have already referred to by the Minister here today. It is not the way to take such important matters forward.
As I said earlier, we welcome the measures, especially the provision of a short business rescue moratorium to protect companies from creditor action while options are considered; the new court-based restructuring tool; and new rules to prevent suppliers from cancelling contracts with businesses in an insolvency procedure. They are all helpful to business, as is the temporary suspension of the wrongful trading provisions to give company directors greater confidence to use their best endeavours as they continue to trade during this pandemic emergency, without the threat of personal liability should the company ultimately fall into insolvency. Importantly, we are keeping the existing laws for fraudulent trading and potential director disqualification to deter director misconduct—so far, so good.
The main and most pressing issue, however, is that these measures do not address the mountain of corporate debt that will prevent firms from investing to rebuild the economy. With reports that less than half the bounce-back loans will not be repaid, it is high time that recipients of the bounce-back loan scheme and coronavirus business interruption loan scheme debt were offered the chance of that debt being turned into equity instead. It is simply unrealistic to expect economic growth while numbing investment, crushing productivity and adding to corporate debt.
To be serious about avoiding insolvency, much more attention will need to be paid to the breadth of effects. Even businesses that survive will face a much longer road to recovery, especially in sectors such as tourism, hospitality and the arts. Without meaningful action, jobs will be lost and communities scarred, probably for decades. The effect on those sectors and others means that the brunt will be borne by thousands of people in the gig economy and on zero-hours contracts—and disproportionately by young people.
The Minister said that he wanted to make a commitment to supporting local economies. It is important that he takes that message back to the Chancellor because, when redundancies come, businesses will focus on those who will cost them the least to release: the low paid; those with no contract; and, as I have said, younger people. I have to declare an interest here as a father who still has two teenagers in the house, and, of course, as a newly-surprised grandparent of my new grandson Cameron Hendry. I want to ensure that all young people have a future to look forward to that is not going to be hampered by decades of retrenchment. [Interruption.] Indeed, Cameron Hendry. It is a fine name, isn’t it?
To get back to the serious point, although the hospitality sector is hopeful of some meagre income in the dying embers of the season, it has effectively faced a three winter situation. It may get 15% to 20% of that which July would normally bring, and maybe a bit more in August, if it is lucky. I have been engaging with and listening to the industry’s concerns, which are similar in tourist areas across the nations of the UK.
Current hotel occupancy rates seem to be below 10%. In my own constituency, the owner of the Kingsmills Hotel Group, Tony Story, told me that his company will have to bear the cost of an additional 15% to 20% per room for electrostatic spraying and hospital-grade cleaning in his hotels. That experience has been reflected by other smaller hotel owners across the sector.
They need the Minister, his Secretary of State and his Government to implore the Chancellor to extend furlough support in the sector beyond this year. As it stands, because of the changes—because of the contribution they will have to pay towards furlough—they will lose more money opening their businesses than when they were closed. It makes no sense to punish them in that way. The furlough scheme has been of great help; we have mentioned that many times and supported it. That is why it is important that it continues in order to avoid insolvencies that may come out of this.
Sarah Olney (Richmond Park) (LD)
It is pleasure to be here on behalf of the Liberal Democrats. Along with other Opposition parties, we support the Lords amendments.
I have taken the opportunity of the easing of some of the lockdown restrictions to get out and about in my constituency and speak to some of our local business owners who are beginning to reopen on the high street. It is quite a positive picture. Many of them have implemented diverse ways of selling to their customers and diversified their offering. They have got through the difficult stage of the lockdown and they are optimistic about the future, but I am conscious that that is not necessarily representative of all sectors and all parts of the country. The economic disaster that we are expecting as a result of the lockdown is really only just beginning to play out. In every news bulletin, we see more redundancies —Swissport yesterday, Royal Mail today—and we know that this is just the start. Therefore, it is incumbent on us all to be shrewd about the legislation that we need to pass to meet this challenge.
It is important that we strike a balance in the Bill between enabling the release of capital from companies that are going to fail, so that it can flow to new ventures with better prospects and secure future employment, and shoring up existing companies and jobs that will be viable once they can trade profitably again. For that reason, we welcome the moratorium provisions. We particularly welcome Lords amendments 67 to 71, which define the priority status of creditors and limit the powers of banks to take precedence in calling in their debt. That allows the moratorium to be more effective, as companies can then prioritise employees and other creditors.
I think that will be increasingly important not just once the immediate crisis has passed but in the coming years. TheCityUK estimates that there will be £100 billion of unsustainable lending in quarter 1 of 2021. That really does need to focus the mind, in respect of not only the Bill but future Government policy. The moratorium provisions will play a part in ensuring ongoing stability next year, but they would have been undermined if banks could not be restrained from taking their cut first, as the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) mentioned.
When businesses can function again after the crisis, it will be important above all to be able to protect jobs. We welcome the amendments that strengthen the protection of pension schemes in particular, but I echo what the shadow Minister, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah), said: it is disappointing that the Bill does not go further. We do, though, recognise the importance of speed. For that reason, we also welcome the amendments that extend the temporary provision to 30 September. We believe that to be a prudent decision.
I wish to take this opportunity to echo other Members’ calls for measures for the theatre industry in particular. I have three theatres in my constituency and the industry is an important part of Richmond Park’s society and culture. I emphasise the fact we are trying not only to meet the challenge of the coronavirus crisis but, for the first time in 40 years, to become an independent trading nation. We should focus on the fact that globally we have a massive competitive advantage with our theatrical industry. Our entire performing arts and cultural sector is something in which we are world beating. If we want to start to export the things that are greatest about Britain, we really must support the sector urgently.
As other Members have highlighted, our theatre sector is facing a crisis and needs an urgent bail-out. Not only it is so important for all the jobs and all the future income that it can bring—not just to individual communities but to the nation as a whole—but it is a seedbed for our film and TV industries, which are also world beating and will be looking to get back on their feet as soon as they are able. I particularly single out theatres for help because we have one in every community—even in the highlands of Scotland, as the hon. Member for Inverness, Nairn, Badenoch and Strathspey pointed out—and they have a critical role in the community at this time. Not only can they shore up employment in local areas, but they can play a vital role in helping children to reconnect with the education on which they have missed out over the past three months. I hope the Minister agrees that that is of absolutely first priority across Government at this time.
Our theatres have large spaces in which social distancing can be practised. They are experienced in education—the Orange Tree theatre in my constituency certainly has a very well-developed education programme—and can provide all kinds of programmes over the summer, particularly to help out young people who may have been unable to access online learning and perhaps do not engage well with traditional forms of learning. We have a fantastic opportunity to reconnect those young people with new ways of learning to stimulate their creativity.
Above all, when the lockdown is over—when we can communicate face to face with each other again—I want everybody to have the opportunity to experience a live performance, because we have all spent too long staring at our unresponsive laptop screens. We want live theatre, live music and visual arts. We want to reconnect face to face again. If we do not have a thriving theatre in every community, it will be much harder to deliver that. For the sake of the theatre industry and the benefits it can bring, not only in actual income but in projecting the United Kingdom to the world, which is more important now than it ever has been, I urge the Minister to make representations to the Government as a matter of absolute urgency to support the theatre industry.
Paul Scully
First, I thank for their contributions all right hon. and hon. Members who have spoken in this and previous debates on the Bill. Overall, it is reassuring to me, and I am sure to the country, to see that the House can come together to provide constructive and challenging scrutiny of important legislation while moving quickly towards agreement in the national interest. The amendments made to the Bill since we last saw it have strengthened its ability to deliver on its ultimate aim of supporting business and reducing the threat of insolvency faced by many during this challenging time.
I thank the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) for her kind words about the engagement on the Bill. She highlighted the need to address sector-specific issues, including those faced by aerospace, the automotive sector and the steel industry. The measures in the Bill apply to companies across all sectors of the economy, including airlines and the automotive industry, provided they meet the relevant eligibility criteria, for example to enter into the moratorium. Ministers and officials are in regular contact with representatives of the steel industry and will continue to work closely with it to determine how steel companies can access the support required at this extremely challenging time.
We know that all sectors must get as much support as possible. As my hon. Friend the Member for North East Bedfordshire (Richard Fuller) said, we must also come back to a sense of business as normal, so that we can start to move through the gears to get the economic recovery that we all want to see, knowing that it will not happen overnight—there is no light-switch moment—but that we must all come together to make that happen.
The hon. Member for Newcastle upon Tyne Central made the point that the financial market is changing rapidly, which is why there remains a regulation-making power in the Bill to adapt as markets do. She also raised the role of employees. My ministerial colleague, Lord Callanan, committed in the other place to the Government’s plan to conduct a review of the permanent measures in the Bill within three years, with a focus on the impact on employees. We will not hesitate to make changes if that review suggests that there is a need to.
My hon. Friend the Member for North East Bedfordshire asked about pensions. He is correct that the interaction between certain measures in the Bill and the pensions legislation gives rise to a number of complex issues. Setting out the detail in regulations will help us to ensure that the balance between trustees’ rights as creditors and the Pension Protection Fund’s interests can be achieved and quickly amended as case law relating to part 26A develops. The pensions framework is, to a great extent, set out in regulations, which allows the law to develop and respond to changes in the market. It is right and proper that the Pension Protection Fund and the Pensions Regulator are able to play a role in the new procedures when it is appropriate for them to do, and that is what the Government amendments allow for.
The Pension Schemes Bill will be in the other place at the end of this month. That Bill builds on the Government’s commitment to tighten the rules on abuse of pension schemes by improving the Pensions Regulator’s power. My hon. Friend asked about the regulations that allow an extension of the temporary changes. Of course, where required, the Government will not hesitate to extend the measures, but we will not extend them indefinitely. We will consider the individual merits of each measure before any further blanket extensions. As he said, it is important that business gets back to usual, but it is also important that shareholders get their say fully at an annual general meeting, as well as at share- holder days. Although we allow directors the leniency to concentrate on their own business rather than their responsibilities to Companies House, there comes a time when we must get back to business as usual, so that Companies House can record companies’ measures.
Richard Fuller
I do not want to delay my hon. Friend’s speech, but the point I was trying to make is that clarity about a change of rules is very important for directors, and that also applies to a change in regulations. If there is an extension, it needs the same debate and airing that we have had at this stage, and when these regulations end, that also needs to be communicated as clearly as possible.
Paul Scully
I am grateful to my hon. Friend for his intervention. The Department and the Government have been engaging with businesses to try to give that clarity. It has not always been possible, as we move in real time. Those of us who run businesses are used to making decisions in real time. What we are doing at the moment is about as close to real time as it gets for a Government. Normally, consultations can take months, and policy changes can take years. We have been working from day to day sometimes.
I congratulate the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) on his new grandson, Cameron—what a brilliant name. I do not know whether it was inspired by a former Prime Minister; maybe not. I hope that his joyous, optimistic and collaborative comments were not coloured by that fantastic news and that that relationship will carry on.
The hon. Gentleman raised the issue of HMRC’s status in the Finance Bill. This is something that came up clearly through the procedure. It is a matter for my colleagues in Her Majesty’s Treasury, but I can say that the role of HMRC is to ensure that tax paid by employees and customers rightly pays for public good. With regard to corporation taxes, HMRC’s status remains the same. I appreciate his input and I am grateful for the way that he has engaged with me and the team. I agree that it is very important that we protect as many jobs as possible. I will continue to work with my colleagues to ensure that we are doing as much as we possibly can to protect the jobs of the young, and the less young.
Drew Hendry
I am grateful to the Minister for his kind comments. I would say in passing that there has to be at least one good Cameron mentioned in this House.
I have asked about a range of things, in addition to the HMRC issue, that are not within the Minister’s direct power. One of them was supporting minor changes to borrowing powers to allow the Scottish Government to take decisions themselves to support economies locally. That is important, as he said. Will he take that forward with his colleagues in order to make sure that we can have those measures taken in Scotland?
Paul Scully
I am grateful to the hon. Gentleman. Clearly, these are all things that we will continue to look at.
The hon. Gentleman talked about the hospitality sector. Let me reassure him that the Government recognise that this sector is particularly hard hit by closure. I have regular conversations with representatives of the hospitality sector, including, most recently, only yesterday. They were very pleased and optimistic about the fact that we have now been able to change the rules within England and start giving them the certainty that they need to reopen. I look forward to successful reopening in England and, in time, in Scotland as well. It is so important that we work with the hospitality sector. The three winters issue that he described has been raised with me and I do appreciate it.
This shows the interlinking of the economy. I also hold the position of Minister for London. The hon. Member for Richmond Park (Sarah Olney) talked about culture. With regard to the hotel sector in London, people do not tend to go to a hotel just to sleep in another bed—they come, they sleep and they go because of the theatres, the restaurants and the culture around the area. It is therefore important that we get each of these sectors up and running. That is why we have these frequent discussions and work as collaboratively as we can. That also gives us the understanding we need in order to inform our support. A range of hospitality bodies and companies were consulted on the safer workplaces guidance, for example.
The hon. Member for Richmond Park talked of striking a balance, which is what we have tried to do in this Bill. I am grateful to her colleagues for making the point so clearly that measures are needed for longer. I hope she will agree that the Government have taken on board those concerns. She also spoke about the theatre sector. I know the Orange Tree. I tend to know the Orange Tree pub next door a little bit better than I do the theatre, but I know the great work that it does in the community. I will take her concerns back to colleagues.
Let me take this opportunity to thank the House of Commons Public Bill Office and the House Clerks for ensuring that this vital piece of legislation could be expedited through the House and consequently come into force as a matter of urgency. The support they have provided has been invaluable. I thank the officials who have brought this legislation into existence: my Bill team of Andy Ormerod-Clarke, Muneera Lula, Jess Bradbury, James Roddy and Alice Roycroft. All those in the teams in BEIS and the Insolvency Service—there are too many mention—have worked tirelessly, across weekends and in the evenings, to make sure that we could bring this to bear as quickly as possible. I want to mention the lawyers who have worked day and night, some of them with very young children, to draft this legislation: in particular, Jo Ashida, Denise Fawcett, Samihah El-Gindy, David Anderson, and our lead parliamentary counsel, Diggory Bailey.
I pay tribute to the policy leads, some of whom have worked in this area for many years, and who have worked with outside experts to make sure that we had the measures right: Steve Chown, Simon Whiting, Laura Bardsley, Rob Mak and many, many more. Colleagues from HMT, the Department for Digital, Culture, Media and Sport, the Ministry of Housing, Communities and Local Government and the DWP have also been invaluable. I pay tribute to all the organisations and representatives of businesses, consumers, workers, shareholders, investors and insolvency experts who have engaged with us in developing these proposals.
I conclude by mentioning those for whom this Bill is intended: the millions of business owners up and down our country who are keeping Britain moving. I say to them: please keep it up. Let us keep moving and let us bounce back our economy as and when the limitations and the restrictions are lifted.
Lords amendment 1 agreed to.
Lords amendments 2 to 116 agreed to.
Mr Deputy Speaker (Mr Nigel Evans)
I am sure we all wish baby Cameron Hendry the very best of health and luck for the future.
I suspend the House for three minutes.