Corporate Insolvency and Governance Bill

Lord Wei Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Tuesday 9th June 2020 Lords Chamber

[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?