Corporate Insolvency and Governance Bill — House of Lords, 2020-06-16
Topic: Labor
John Hendy (Labour, Centre-left): My Lords, in speaking to Amendments 83 to 86, I will begin with an introduction and then make two points, which will also shorten my contributions to amendments in later groups. The Government rightly foresee that, in consequence of the pandemic, many companies will run into or are already in financial difficulty. Companies become insolvent all the time; we all know the fates of Woolworths, Bernard Matthews, Mothercare, Thomas Cook, Wrightbus, Jamie’s Italian, Carillion, Flybe and many more. There were 17,196 company insolvencies in 2019 alone, but Covid-19 will make it worse Hundreds of thousands of workers are directly engaged by the companies in danger. There are hundreds of thousands more in their supply chains. Many will find themselves among the 2 million unemployed workers estimated by the Office for Budget Responsibility to join the 1.36 million unemployed before lockdown—a total of 3.36 million unemployed: a catastrophe. Not only are livelihoods at risk, but the terms and conditions, and the pensions, of those whose jobs are saved are also at risk. We have already seen this in companies that are not insolvent: pay cuts of 10% at the Daily Mirror; of 20% at BAM Construct; of 20% at Ryanair, with a loss of possibly 3,000 jobs; and up to 60% at British Airways, with 12,000 jobs to go There can be no doubt that the opportunities offered by the Bill, though generally welcome, will be utilised, as in Chapter 11 proceedings in the USA, to scrap jobs, cut pay and dump pension liabilities. I understand that the Minister has recognised the risk to pensions, yet the remarkable fact remains—and this is the first of my two points—that, in the 234 pages of the Bill, the workers, even those directly engaged, are not mentioned. They are at risk, but not protected Most strikingly, the Bill provides no requirement for workers and their representatives to be involved in the decisions that follow the recognition that a company is in financial difficulty and the consequences of such decisions—decisions that are profoundly likely to affect their futures. In the other place, it was said that, in court approval for restructures, the court will have regard to the workers and pensioners in its duty to ensure that the outcome is just and equitable. That will not wash. There is no duty to have regard to the interests of workers and pensioners, and no provision requiring workers or pensioners to be represented in or heard by the court It is true that Section 172(1)(b) of the Companies Act provides that among the considerations that directors must take into account are the interests of the employees. But the directors are not obliged to ask them for their views or discuss with them the possible consequences of an application under the Bill. Still less is there any requirement to bargain collectively over these matters. Directors commonly ignore the interests of workers when a company is in financial difficulty. Often, the workers first learn that the company has gone into liquidation on the TV, well after all key decisions have been taken—for example, at Carillion, or Flybe earlier this year Section 188 of the Trade Union and Labour Relations (Consolidation) Act requires consultation before redundancy. We know that too often, that does not happen, even where administrators have been appointed. It is often cheaper to liquidate the company than to keep it going while consultation takes place. In the administration of Woolworths, £67.8 million was paid in compensation for failure to consult. For Comet, it was £26 million. But the companies, directors and administrators that choose to break the law by not consulting do not pay. Where there are insufficient funds, the burden falls on the taxpayer, under Part XI of the Employment Rights Act, by which the National Insurance Fund pays—capped at £538 a week—up to eight weeks’ unpaid wages, wages in lieu of statutory notice, holiday pay and basic awards for unfair dismissal. Why does the taxpayer pay? Insolvency law distributes the risk of economic failure in a grossly unfair manner.