Corporate Insolvency and Governance Bill — House of Lords, 2020-06-16
Topic: Domestic Commerce
Olivia Bloomfield (Conservative, Centre-right): I thank noble Lords for their amendments on these important issues and their comments in this short debate. The amendments include making additional changes to insolvency legislation in the provisions regarding the prescribed part, which is the amount of a company’s net property that must be reserved for the benefit of unsecured creditors when a company enters insolvency. There is what I take to be a probing amendment, which will provide the opportunity to discuss the effect of priority on creditors, such as pension fund deficit, as flagged by the noble Baroness, Lady Bowles. There is also an amendment in this group from my noble friend Lady Neville-Rolfe to enable the regulation of pre-packs and connected sales in administration. As this matter is being dealt with in group 10, I hope my noble friend will not mind if her amendment is spoken to in full in that group The measures in the Bill are intended to help companies maximise their chances of survival during the Covid-19 emergency, to protect jobs and to support the recovery of the economy. That is why other measures that would not alleviate the impact of the current emergency have not been included in the Bill I shall first deal with the probing amendment from the noble Baroness, Lady Bowles, and the noble Lord, Lord Fox. It is correct that the priority rules, which apply to some debts when a company enters insolvency following the end of a moratorium, change the way in which a company’s assets are allocated among different types of creditor, but the Government consider there to be compelling reasons why the moratorium provisions should give priority to certain types of creditor. These relate to rent and goods and services supplied during the moratorium, which will enable the company to pull through as a going concern For example, they include amounts owed to employees —which, as I am sure noble Lords agree, should rightly be considered a special category—and liabilities involving financial services, where default could result in the company facing a demand to repay a much larger amount, which would prevent the rescue of the company as a going concern. For the moratorium measure to operate successfully, it is essential that providers supplying these types of goods and services during the moratorium have some level of assurance that they will receive payment for those supplies The amendments from the noble Lords, Lord Hendy, Lord Hain, Lord Monks and Lord Stevenson, would change the value of the prescribed part and alter the way in which an insolvent company’s property is distributed between different categories of creditor. The rules for calculating the prescribed part were recently amended by statutory instrument in April this year. The noble Lord, Lord Hendy, asked how this was calculated: the proportion set aside for payment to unsecured is calculated at 50% of the first £10,000 of assets plus 20% of the rest up to—he was correct—a current cap of £800,000. This amendment was as a result of a consultation that ran between March and June 2018. As a result of these changes, the maximum amount of the prescribed part was increased from £600,000 to £800,000 When this issue was consulted on, respondents expressed concern that further alterations to the rules for calculating the prescribed part were likely to have an adverse effect on lending, as floating charge holders may not be able to accurately assess their level of risk and anticipated recovery in the event of the debtor’s insolvency The noble Lord, Lord Mendelsohn, asked why the Government have not introduced measures to support the provision of debtor-in-possession rescue finance for distressed companies, in line with other jurisdictions, such as the Chapter 11 arrangements in the US. While the current UK restructuring framework does not provide explicit debtor-in-possession finance provisions, it allows rescue finance to be used to help rescue a financially distressed company. The Government previously consulted on various ways in which rescue finance could form a more prominent part of the restructuring package but, at that time, feedback from stakeholders was that the new measures would still allow for rescue finance with all the features found in other jurisdictions. I hope that answers the noble Lord’s question Lastly, the noble Lord, Lord Fox, mentioned the Finance Bill and HMRC taking precedence. I am not sure that he is aware that its precedence relates only to moneys it holds on behalf of employees, such as national insurance. For the reasons I have set out, the Government are not able to accept these amendments. I hope the noble Lords will therefore withdraw their amendments.