Corporate Insolvency and Governance Bill — House of Lords, 2020-06-23
Topic: Domestic Commerce
Robin Granville Hodgson (Conservative, Centre-right): My Lords, I have Amendment 45 in this group but, before I speak on it, perhaps I may say that I entirely support the Government’s Amendments 37 and 38. They are very sensible and have my unequivocal support I turn to Amendment 45, to which the noble Lord, Lord Vaux, the noble Baroness, Lady Bowles, and my noble friend Lady Altmann have added their names. I am most grateful to them and indeed to other noble Lords all across the House who have been in touch with me to say that it seems a sensible way of proceeding. We discussed this matter at length last Wednesday. I shall try to avoid repeating myself, although of course I need to fill in the story for those who have just joined in at this stage Like my noble friends Lord Callanan, Lord Leigh and Lord Holmes of Richmond, I recognise that pre-packs have their uses. As I said in the debate last week, they are a useful spanner in the toolbox of the insolvency practitioner. However, they are open to serious abuse, as my noble friend Lord Callanan admitted a moment ago. Let us quickly run through a real-life example, and here I will slightly repeat what I said last week I ask noble Lords to imagine the following. You are a director of a company that is struggling because of past operating losses, which have led to large debts being accumulated; or perhaps it is a very old, established engineering or industrial company that has a long tail of pension liabilities that get increasingly heavy. Insolvency and administration loom over you, but you and your fellow directors feel that somewhere in the business is a really profitable activity. However, the company is worth saving only if you can get rid of all your debts. Therefore, you, as a group of directors—maybe with some associates—find an administrator and say that you would like to make an offer for the bits that you want. That offer might be very substantial but, equally, it might be £1 or £1,000. That is the key to the problem that we are trying to tackle here. Nobody can say that anything is wrong where a fair-value, full-price offer is made You make a nominal offer on, say, a Friday, which means that the company is put into administration over the weekend. On Monday, you advertise it in the newspapers and after four days, if the administrator has had no competing offers, he or she can say that they have tested the market and have obtained a fair price. It is of course vanishingly unlikely, although possible, that within four days anybody will be able to come up with an offer de novo, from a standing start. Your group, having paid the money to the administrator, is now the proud owner of a company that is without all its liabilities to suppliers great and small, local and national, as well as to the Pension Protection Fund—but you might be the very people who led the company to the edge of disaster in the first place Many in your Lordships’ House would ask "How could this possibly be?" It has an awfully superficially attractive political ring to it. A Minister, a councillor or a Member of Parliament can get up and say, "Look, I’ve just saved 300 jobs." That sounds awfully good, but nobody weighs on the scale what is happening elsewhere. For every debt that you have written off, another company loses money. It might be a small local supplier that might have to make redundancies of its own and might itself, in extremis, go into receivership. There is also the general damage to the local economy, as there is to the Pension Protection Fund. This has always seemed to me, at least, to be a very unfair way of proceeding unless it is properly supervised.