Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Debate between Peter Grant and Luke Hall

Report stage & 3rd reading
Thursday 9th September 2021 Commons Chamber

[Peter Grant]

I beg your pardon, Mr Deputy Speaker. I am standing to speak to the wrong provision.

[The Minister for Regional Growth and Local Government (Luke Hall)]

I welcome the contribution from the hon. Member for Manchester, Withington (Jeff Smith). I shall start by responding to new clause 1, tabled by the hon. Member for Feltham and Heston (Seema Malhotra) and the hon. Gentleman. I am grateful to him for his constructive words and the way in which he has approached the debate.

The new clause would require the Secretary of State to report to Parliament on the number of directors investigated and disqualified under the new provisions in the Bill every three months from the date that the Act is passed. I am grateful to hon. Members for the opportunity to confirm to the House that statistical reporting is routinely undertaken by the Insolvency Service. Regular three-monthly releases cover company insolvencies across the whole UK as well as individual insolvencies in England and Wales. The releases also contain underlying data and are published and available online to everybody.

As well as that, since the start of the pandemic, the Insolvency Service has been publishing experimental monthly releases of data concerning insolvency numbers. This was so that the statistics could act as an indicator of the impact of the pandemic on insolvencies. It may be of particular interest to hon. Members that the Insolvency Service also releases monthly updates about its enforcement activities. This information includes not only the number of companies wound up in the public interest, but the number of disqualification orders and undertakings broken down by the relevant section of the Company Directors Disqualification Act 1986, under which they were sought. Going forward, these numbers will include any orders or undertakings obtained as a result of this new provision. The reports also include information on lengths of periods of disqualification. Furthermore, there is an annual report on the nature of the misconduct being alleged.

I hope that the hon. Gentleman is reassured that a large amount of information is already provided that can be accessed easily through a quick online search and that future reports of enforcement outcomes will include any disqualifications made against former directors of dissolved companies. I would be grateful to him for withdrawing his new clause.

Let me just add one last point. The hon. Gentleman also mentioned the new burdens on councils. I somewhat couched my answer the last time we spoke about it, so I just want to put on record that we will absolutely be meeting the new burdens cost, including the associated administrative and IT costs.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Third sitting)

Debate between Peter Grant and Luke Hall

Committee stage
Thursday 8th July 2021 Public Bill Committees

[Peter Grant (Glenrothes) (SNP)]

I am very grateful for your understanding, Ms Rees, in allowing me to speak. I would like to make some comments on clause 2. I think that the new clauses are good and I hope that the Committee will agree to them.

There is widespread agreement that clause 2, or something very like it, is needed. We have seen only one dissenting submission from anybody, and that was from an individual solicitor. Speaking as a legal layperson, I thought that that submission contained inconsistencies and seemed almost to miss the point of the legislation. Although I respect the right of that individual to express their views, I cannot agree with them.

We already have legislation that gives the Insolvency Service three years to apply for a disqualification order against the director of a company that goes through a full liquidation if it finds evidence of misconduct in the running of the liquidated company. If the director chooses to dissolve the company without going through liquidation first, the Insolvency Service cannot move to have them disqualified from other directorships for misconduct in the running of the dissolved company.

To indicate how untenable that inconsistency is now that it has been identified, I invite the Committee to imagine that the clause we are debating had been included in the Company Directors Disqualification Act right at the beginning. If somebody had come forward with a proposal to change the Act to create a special exemption for directors who deliberately dissolved their company as a way of dodging the consequences of the own misconduct, nobody would have taken it seriously. We would not create a loophole deliberately. The only disappointment I have is that the proposal to close this loophole has taken so long and that there are still far too many other loopholes for criminals to exploit.

I want to repeat a comment I made on Second Reading, and on which I asked a number of the witnesses to comment on Tuesday. The Government rightly point to the increase in phoenix companies that are set up as part of, or immediately after the dissolution of, a dodgy company. A similar abuse can and does take place where the phoenix company is a long-established associate company of the one being dissolved. The abuse does not rely on a new company being set up if the directors have a few handy replacement companies already in the bank, or on the Companies House register.

During the evidence sessions, I asked a number of witnesses if they had any concerns about the retrospective nature of clause 2. It is important to remember, as the Minister has pointed out, that we are not retrospectively outlawing something that was legal at the time; all we are saying that if someone is strongly suspected of having acted improperly or illegally in the past, that misconduct can be properly investigated. We are not even giving additional powers to the regulator to act; we are removing an artificial barrier that should probably never have been there in the first place to allow that investigation.

We heard an interesting range of views from witnesses on the three-year time limit. As the Minister pointed out, that limit applies from the date of dissolution, not the date of misconduct. If, for example, the directors of a company dissolved it in 2019 because they realised that their misconduct of 2015 was beginning to be picked up by the Insolvency Service or anyone else, they would not get away with it. For now, I think it makes sense to retain the three-year limit that applies elsewhere in the original Act, but I ask the Minister to give careful consideration to extending the limit in future legislation.

In other debates, I have referred to the scandalous way in which Blackmore Bond plc targeted very high-risk investments at people it knew were looking for quite the opposite—a safe place to invest money they could not afford to lose, as they had told the directors of Blackmore Bond. The investors have lost pensions and life savings totalling £46 million. The shareholder directors, Phillip Nunn and Patrick McCreesh, still appear to be doing very nicely indeed, thank you very much.

In 2015, the Insolvency Service, as part of a much bigger investigation into at least one other company, found that through an earlier company called Nunn McCreesh limited liability partnership, the same Phillip Nunn and Patrick McCreesh had been paid nearly £900,000 to identify investors for Capita Oak—an investment scheme that is now under investigation by the Serious Fraud Office. At the very least, there are major questions about what Nunn and McCreesh did for their £900,000 and about whether it was legal or proper. Perhaps by complete coincidence, also in 2015, Nunn and McCreesh dissolved the limited liability partnership.

Under the existing legislation, the Insolvency Service would not have been able to use any misconduct in the running of Nunn McCreesh llp to apply for disqualification orders against Nunn and McCreesh. It could not have stopped them from setting up the much more lucrative Blackmore Bond in 2016. The Bill still would not allow it to do so because of the three-year time limit. That is one reason I am asking the Minister to consider the three-year limit in future.

At least this legislation means that if another Nunn McCreesh llp comes along now, the Insolvency Service will have one small but important additional weapon in its armoury to stop it. It came too late to stop Blackmore Bond making £46 million by making other people’s money—other people’s life savings and pensions—disappear. Hopefully, the next Blackmore Bond will be stopped in time and that will not happen again.

It took only the briefest of searches this morning to find that Phillip Nunn, one of the directors of Blackmore Bond and Nunn McCreesh, was a director of no fewer than 10 different companies that have been dissolved in the past year. For most of them, the only other director was Patrick McCreesh. I do not know whether Mr Nunn or Mr McCreesh was ever placed under formal investigation for their part in Capita Oak, and I do not know what was in the liquidator’s report that was submitted to the Secretary of State about their conduct, as happens with any insolvency case, but surely the fact that they were able to dissolve the company in 2015 should not make any difference to the investigations to which they can be subjected now or the sanctions they can face if they are found or suspected to be guilty of serious misconduct in the operation of Nunn McCreesh llp or any of their other companies. When I was looking at the activities of Blackmore Bond, one of the other companies with which it went into what was called a strategic partnership led to another of these fascinating spider’s webs of dissolved companies and resurrected companies, one of which has an ultimate owner that is a limited liability partnership registered in England with five partners who appear to be members of the same family—two people of similar age who are the designated partners, and three people about 25 to 30 years younger than them who are partners but not designated. It looks like mum, dad and kids—why not?

According to documents that the senior designated partner certified and submitted to Companies House, which Companies House accepted and still has displayed on its website, one of those younger partners consented to the responsibility of being a partner in that partnership when she was 16 years old. One of them, according to those documents, consented to those responsibilities when she was 14 years old. One of them was 10 years old.

Some of our witnesses referred to the gross inadequacies in the processes of Companies House for checking the documents that are submitted to it. Those documents are being used to demonstrate that a company is genuine and bona fide. Those kinds of thing make it clear to me that while the Bill should be supported today and while the clause should be adopted with or without the related new clauses suggested by the main Opposition party, there are still massive holes in our regulation of companies through the Financial Conduct Authority, Companies House and the register of companies, the Financial Reporting Council and the professional auditing bodies.

Not a single part of the regulatory framework is working properly. Sometimes that is because the regulators are not doing the jobs that they are there to do. Sometimes it is because they are not resourced and do not have the firepower to compete with some of what they are faced with. Sometimes it is because the legislation we have provided them with is not fit for purpose. When those three things come together in so many regulators at the same time, it is no wonder, as one of our witnesses pointed out, that the United Kingdom is seen as one of the softest of soft touches for fraudulent companies. An entire company can be set up for no other reason than to steal people’s money.

I welcome the Bill, I certainly support clauses 2 and 3, and I will recommend that the Bill be supported when it returns to the House on Third Reading, but it is only a tiny step on a much longer journey. I urge the Minister and his colleagues in Government not to see the Bill as the last step, but to see it as the first in making the United Kingdom, whatever format it might take in the future, and all our four nations no-go areas for the scammers, chancers and charlatans for whom we have been far too soft a touch for far too long.

[Luke Hall]

I thank the hon. Gentleman for his powerful contribution; he is extremely well informed on these matters. I thank him also for his support and take into account his comments on the three-year limit. I am grateful for that.

The Government are certainly not pretending that the work stops here. However, the Bill is a positive step forward in the right direction and it is taking action. I will raise the points the hon. Gentleman has made today with the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3 ordered to stand part of the Bill.

Clause 4

Extent, commencement and short title

Question proposed, That the clause stand part of the Bill.