Corporate Insolvency and Governance Bill — House of Lords, 2020-06-09
Topic: Macroeconomics
Robert Stevenson (Labour, Centre-left): My Lords, I thank the Minister, his colleagues in the department and the Bill team for all the engagement that we have had on the Bill in recent weeks. I am also grateful that a number of virtual meetings have been set up for Members of your Lordships’ House. Several helpful letters have also been received. We are therefore well briefed about this sensible and proportionate Bill and cognisant of the reasons why it is being brought forward on a fast track. I can confirm that, while we will give the Bill good scrutiny, our objective as Her Majesty’s loyal Opposition is to be constructive and to ensure that our businesses get the support they need now and in the long term.   A large number of Members of your Lordships’ House have signed up to speak in today’s debate, and we look forward to their comments and questions to the Minister. We will put down a range of amendments tomorrow based on today’s debates as well as the submissions that we have received from organisations and bodies concerned with this issue. I also thank the Library for its very helpful note on the Bill.  The Minister said that although some of the measures in the Bill had been consulted on a few years ago, it is at heart a part of the Government’s package of measures to address the supply shock caused by Covid-19. As the impact assessment for the Bill states, the case is certainly strong: "Early models of the impact of Covid-19 have suggested that UK GDP growth in 2020 … could range between -3% and -13%, with scenarios for corporate insolvencies ranging from 30,000 to 160,000." However, does this not raise the question of what is going to happen to the other corporate insolvency measures which were consulted on in 2018-19? What about the wider policy response arising from various significant corporate failures in recent years such as Carillion, which is now overdue We are now entering the end of the lockdown phase, and the challenges ahead are becoming clearer. There will be a huge amount to do to ensure that the recovery is as short and strong as possible so that we minimise the impact on unemployment levels and the wider economy. I agree that it would have been wrong to hold back the measures in this Bill because other proposals were not yet ready to be included, but the last thing we want is for these issues to be dealt with in silos. Provisions in the Finance Bill 2020 ensuring that HMRC is a secured creditor in insolvency proceedings are surely a classic example of this, potentially running a coach and horses through this Bill. Many issues need a cross-government approach, which is appropriate. Our insolvency framework touches almost every part of the economy and helps to create the confidence and public trust which underpin trading, lending and investment I turn to the Bill. We support both the permanent changes being made to insolvency law and the temporary changes being made to insolvency law and corporate governance. Others speaking today will undoubtedly make particular points about the Bill, and we look forward to the Minister’s responses. To get us started, I will mention a few areas where we will put down probing amendments The position of employees seems unsatisfactory, both in terms of their lack of formal involvement in the processes and in relation to outstanding pay and other claims during the moratorium. The classification of pension scheme deficits, particularly for defined benefit schemes, as unsecured creditors seems unfair and perhaps should be reviewed. Many of the companies likely to take advantage of the new measures will be SMEs, and many SMEs will be unsecured creditors in insolvencies of other companies. The current insolvency regime was introduced in 2003 and is basically unchanged since then. It gives preferential protection to secured creditors and, as noted earlier, HMRC has legislated to protect its position. Is there a case for reconsidering the treatment of unsecured creditors On the length of the moratorium, Chapter 3 does not contain a maximum period and there appears no overall limit on the number of extensions available. Is that right? The new position of monitor is welcome but, apart from the requirement that he or she must be an insolvency practitioner, there is no other requirement set out in statute and the appointment is left wholly to the discretion of directors, with no role for creditors. We surely need much more detail here. As has been said, the Bill helps struggling businesses by temporarily removing the threat of winding-up proceedings where unpaid debt is due to Covid-19; and it introduces temporary measures to void statutory demands against companies during the emergency. We support those. It is important that the measures suspending liability for wrongful trading do not relieve directors of their duty of care to act responsibly and in good faith, as specified in Section 172 of the Companies Act 2006. Should these measures not be put into the Bill Given the time that has elapsed since the lockdown, and the continuing reduction of normal economic activity, we would not object if the Government wished to extend the initial period of the effect of the Bill to 30 September 2020, even though, as the Minister said, they have power to extend it using secondary legislation. Some of the issues I have mentioned could be dealt with by inviting the Minister to clarify on the record what the Government mean by the current drafting. In other cases, we would hope to convince Ministers that substantive action may be required in subsequent legislation, and we will be pressing them to take an early opportunity to do so I mentioned earlier that the measures in this Bill needed to be considered in the wider context of the changes that will be needed to ensure that our economy recovers quickly and sustainably after Covid-19. One of the most shocking recent corporate collapses was that of Carillion, because it seemed to arrive without warning, despite active monitoring by the Government, and it affected tens of thousands of workers and subcontractors. In recent years, many familiar high-street retailers have closed, leading to devastating implications for workers, their families and wider communities. These collapses raise a number of questions. Why are our systems of auditing and reporting not able to pick up possible corporate failures earlier? Who is to blame? Do we focus enough on restructuring and rescuing companies which get into trouble, and do we have the skills and experience in the professional services needed to do that In a recent report, the TUC argued persuasively that the insolvency law is currently too heavily weighted in favour of creditors, often the banks. Other countries, notably Germany, take a very different approach. Staff in companies which crash and burn face substantial financial losses when their firm goes to the wall. Gaps in employment law also mean that those in insecure work, including agency workers, zero-hours contract workers and the self-employed—the so-called gig economy—miss out on even basic protections. Despite promises to enact the recommendations of the Taylor review, we still have the situation in this country where all employees are workers, but not all workers are employees. Why the delay One of the reasons that Carillion failed was that it carried huge levels of debt, a situation that is, unfortunately, likely to recur more widely in our economy as we recover from Covid, creating inherent risks to which boards, investors and auditors need to be able to respond. Are we confident that we have the systems in place? Over the next few years, the Government must bring forward an integrated approach to the issues raised by the recent series of corporate failures, including: more corporate transparency and reform to the role and function of Companies House; training for directors, owners and senior management of public companies; legislation for CMA reforms for the appointment and oversight of auditors, and for the Brydon recommendations on compliance and practice; better insolvency practitioner regulation; the future of "pre-pack" administrations; making the Prompt Payment Code statutory, not voluntary, and giving the Small Business Commissioner real powers to ensure that the code is enforced; and ensuring that consumers have a central role in relation to policy on financial services and decisions on mergers and acquisitions Finally, the Bill is aimed at helping businesses, but why are these measures not also available to individuals, millions of whom will be facing unmanageable debt? A report in the papers today suggests that British households are expected to rack up debts worth £6 billion because of the coronavirus crisis. That is on top of figures which show that, at the end of January 2020, UK household debt was around £1,680 billion. Some 12.8 million UK households have no savings or savings of less than £1,500. The Government have committed to introduce a breathing space scheme for personal debt, and to roll out the successful statutory debt management plans which operate in Scotland. We urgently need these to be introduced now.