Corporate Insolvency and Governance Bill — House of Commons, 2020-06-03
Topic: Domestic Commerce
Stephen William Hammond (Independent, Unknown): 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.