Corporate Insolvency and Governance Bill — House of Lords, 2020-06-09
Topic: Domestic Commerce
Kishwer Falkner (Liberal Democrats, Centre to centre-left): 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.