Corporate Insolvency and Governance Bill — House of Commons, 2020-06-03
Topic: Domestic Commerce
Lucy Maria Powell (Labour, Centre-left): The hon. Member makes a good point. Businesses that are struggling to keep their heads above water need certainty, and they need to know that the lifeline measures in the Bill will not be pulled from under their feet before they even reach needing them The point of the suspension of the wrongful trading provisions is that lots of businesses are effectively trading technically insolvent already through no fault of their own. Just as we have seen Ministers rightly extend the furlough scheme, support for the self-employed and other measures, they should get ahead of this now. Rather than having to spend time on a statutory instrument in only two or three weeks’ time, Ministers could and should take the opportunity to get this done today by agreeing to our amendment Amendment 2 would extend the moratorium for small businesses from 20 days to 30 days for businesses facing insolvency. The Federation of Small Businesses has called on Government to extend the moratorium period for small businesses because it does not believe that the 20-day period in the Bill is sufficient. We support that call and ask Ministers to agree to that change New clause 2 has not been selected, and we will have a proper look at this in the other place, but we think that the powers of the Small Business Commissioner should be strengthened, as we discussed on Second Reading We have long argued for some of the permanent measures in the Bill, particularly in the wake of the Carillion collapse. However, we have some concerns about what has been left out, as I said on Second Reading. There could be unintended consequences in the restructuring proposals that are being put in place that could disadvantage small businesses, employees or other unsecured creditors, such as pension funds. The Minister and I have discussed the issue in private, and it was also raised by a number of Government Members earlier. Given the crisis and the numbers of businesses already struggling, we appreciate the haste in bringing forward the changes, but we are concerned that Members and outside bodies have not had a lot of time to scrutinise the Bill and its implications, so we think the Government could consider having a period for reflection and review We have included as amendments a number of omissions from the 2018 consultation. The collapse of Carillion and the consequences for workers, supply-chain businesses and the public were a national scandal and an abject failure of British corporate governance policies. There have been huge repercussions for taxpayers, with unfulfilled contracts, unfinished buildings and thousands of apprentices laid off—the taxpayer had to foot the bill for those failures of corporate governance. There is, rightfully, public anger at the failure to hold people to account for such things. As ever, it seems that in such instances the profits are taken by the private sector, but the public sector foots the bill when the risks have been taken by directors over whom they have no control. Given the economic crisis that we face and the likely recession, it is clear that in the next few months and years we will see more big corporate collapses and failures, so it really is remiss of the Government not to strengthen the corporate governance measures, as they said they would do in 2018. I wish to make it clear, especially because Members raised this earlier, that the measures in our amendment are lifted entirely from the Government’s own recommendations Alongside key omissions from the Bill, we have heard from academics, trade unions and other organisations about some of the sweeping powers in the legislation and the fact that there could be considerable scope for the misuse of some measures to disadvantage particular groups. The next set of amendments would seek to safeguard funds for unsecured creditors, protect pension schemes, and protect employees by giving trade unions a voice in any restructuring plans. I urge the Minister to have conversations with the trade unions and to look to add our provision—or a provision like it, as Members from both sides were calling for earlier—to the Bill as it progresses to the other place We have concerns about how the restructuring plan will hit employees: many more could be pushed to or around the national minimum wage and lose their rights and their wages, as we are currently seeing with what British Airways is doing. Pension scheme deficits will be left unaddressed and more workers could end up losing out from their pension schemes. If this was not an emergency Bill, we would have had a lot more time to probe Ministers on these issues in a full Committee and to discuss what could be done to strengthen the protections in the Bill New clause 1 would insert into section 176A of the Insolvency Act 1986 a requirement that at least 30% of the proceeds from the sale of assets of businesses in administration or liquidation should be ring-fenced for payments to unsecured creditors, who often end up losing out to larger creditors, such as banks. The new clause explores a way for unsecured creditors to be guaranteed some assets so that they do not miss out. The legislation assumes that all creditors are identical and take a hit, but we know that that is not borne out in reality. There is a case for protecting the debts of SMEs and other unsecured creditors up to a specified amount, and that should not be reduced. What assurances can the Minister give that unsecured creditors will not lose out as a result of the Bill—although I know that that is what it is designed to try to achieve—and what mitigation is in place to protect unsecured creditors, who are often in the SME sector The intention of new clause 4 is to make pension scheme deficits a priority creditor in the event of insolvency and therefore due to be paid before unsecured creditors. The new clause would require the Government to make pension scheme deficits a priority, meaning that they would be the first in the queue in the event of insolvency and paid before other creditors. That could make employees’ votes count and offer them some protection. It is worth remembering that pension schemes are unsecured creditors in normal circumstances. If the deficit is not addressed by companies, employees face an erosion of their pension rights and their pension value goes down. Our amendment would help them to become a separate class in their own right and not to be subsumed into the amorphous mass of unsecured creditors. Members would be able to vote on any restructuring plan. That way, there would be a clear message to past and present employees. Given the nature of this debate and the number of colleagues from both sides of the House who have raised this issue, I hope that Ministers will look at the matter The intention of new clause 5 is to require mandatory discussion with trade union representatives once a company has entered the restructuring process. I understand that US evidence shows that restructuring plans often hit employees hardest, and many of the provisions in the Bill are based on US-European models. Wages can be reduced and employment terms changed. Many employees end up on zero-hours contracts or, as we have seen recently with BA, are sacked and then offered worse terms and conditions when they are re-employed. Pension rights are also reduced, and that could happen in the UK. I am sure that Ministers do not wish that to be an unintended consequence of the legislation, so we hope that the Minister will look at our idea, or a similar idea, and see if it can be introduced in the other place. I hope he can provide reassurance on that, not least because my boss, the shadow Secretary of State, is particularly agitated—and rightly so—about this issue I hope that the Minister will consider the amendments in the constructive way in which they are tabled. A number of Government amendments have been tabled, and they seem reasonable. We have not had a lot of time to study them, but I am grateful to the Minister for arranging a briefing with his officials. I look forward to his providing us with a bit more detail and assurance as the Bill proceeds.