Administration (Restrictions on Disposal etc. to Connected Persons) Regulations 2021

Baroness Neville-Rolfe Excerpts

Monday 22nd March 2021 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I thank my noble friend the Minister for his explanation of these regulations, and for his courtesy and that of officials in meeting some of us to explain how thinking in this important area was developing. It is a particular pleasure to follow the noble Lord, Lord Mendelsohn, with his extensive practical experience.

One of the problems with insolvency law is that it is monumentally complex. I know this because I am a chartered company secretary and passed papers which tested me on the law in this area. The course taught me helpful and important lessons about a director’s duties if a company was heading anywhere near insolvency. However, I confess that I do not fully understand all the minutiae of the law and I suspect that I am not alone in this.

Nevertheless, we are where we are, and I thank the Minister for recognising that pre-packs can have value: business is not interrupted, jobs may be saved and a good brand safeguarded, although conflicts have to be watched very carefully. This inherent benefit influenced the Graham report on the future of pre-packs in 2015. I have a lot of time for the common-sense expertise of Teresa Graham. She favoured a voluntary approach with a reserve power, so it is a little disappointing that the Government have now found it necessary to legislate, difficult though this is. The Minister has explained why he thinks this is needed.

A very important Graham recommendation was that there should be a Pre Pack Pool of experienced business people where, on a voluntary basis, details of a proposed sale to a connected party could be disclosed to an independent person prior to the sale taking place, thus giving greater confidence to creditors that the deal had undergone independent scrutiny. This pool has apparently not been much used and that is one of the reasons the Government have moved to a statutory system, with all pre-pack administration sales to a connected purchaser requiring an independent opinion from an evaluator on the sale.

The problem with this provision as now drafted is that the evaluator must only be independent, without obvious blemish on their record, and have relevant knowledge and experience; they do not have to have professional qualifications or be recognised in some other objective way. This moves away from the Graham notion of a Pre Pack Pool of people with knowledge of the industry exchanging good practice and intelligence, which might help to head off trouble. Has my noble friend considered the case for such a pool of evaluators? They could be explicitly recognised by the Insolvency Service, or some other body, and be encouraged to exchange experiences.

I should thank my noble friend the Minister for the progress made in consultation on these regulations. There is, however, a feeling among those I have consulted that he could usefully have made more changes to the consultation draft. Returning to my point about complexity, this is difficult stuff and it needs to be “work in progress”, with changes to the regulations if the need arises. We also need an eagle eye for perverse effects and for those gaming the system—we heard from the noble Lord, Lord Mendelsohn, about his concern about opinion shopping.

Perhaps I could echo the noble Lord’s final point on review; it would be very helpful if my noble friend could outline his plans for monitoring and evaluation and indicate when and how we might receive a review of progress on the new system. I was a little disappointed by paragraph 14 of the Explanatory Memorandum on this point, given the importance and complexity of legislation on insolvency. For example, maybe something could, in practice, be done in the annual report of either BEIS or the Insolvency Service. But I support the regulations and thank the Minister.