Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill — House of Lords, 2021-12-01
Topic: Domestic Commerce
Howard Leigh (Conservative, Centre-right): My Lords, I have put my name to Amendments 5 and 6, although, with all credit to the noble Lord, Lord Fox, his team did most of the work in compiling the text. Given the hybrid nature of the Bill, I need to declare a completely different set of interests, which is that I am chairman of an AIM company, Manolete Partners plc, which is in the insolvency-related area The direction of travel from the noble Lord, Lord Fox, and me is to ensure that regular creditors, in addition to Her Majesty’s Government and agencies such as HMRC, are looked after where companies have been dissolved. It is clear that some people are prepared to be struck off as directors and do not see that as much of an impediment to their business life. I am grateful to the insolvency trade association, R3, which has advised us that insolvency and restructuring professionals, who have extensive experience in tackling fraud, have noted that serious serial rogue directors do not see being disqualified as a significant deterrent, and will often go on to commit repeat frauds. Insolvency practitioners frequently see disqualified directors contributing to successive business failures or breaching the terms of their disqualification by working as shadow directors or "advisers" to these phoenix companies that are subsequently set up. In fact, R3 has given us specific examples of where that has taken place It is clear that the disqualification mechanism is not in itself deterring culpable directors, thereby putting the public at risk. For the policy to be effective, it is clear that investigations should lead to prosecutions. It is not clear to me how the prosecution of a director of a dissolved company—that is, a company that no longer exists—can legally take place without the company first being restored. Perhaps the Minister can clarify that. Does the Insolvency Service intend to restore every company when it is going for prosecutions? That is why we want to see how the Insolvency Service will do that and how successful it has been. That is why Amendment 5, particularly proposed new subsections (2) and (3), is required There is still the open question: is this the right route? For example, should we be looking at changing the law somehow to allow prosecution of directors of former companies, now dissolved, without returning them to the register? I would be keen to push the Insolvency Service to tell us, as proposed new subsection (2)(b) of Amendment 5 requires. But what the noble Lord, Lord Fox, and I are most concerned about is compensation. In that regard, I thank the Minister for his letter of 22 November setting out the position on the existing regime as far as Sections 15A and 15B of the Company Directors Disqualification Act 1986 are concerned in respect of compensation orders As I understand it, using a compensation order means that many other frauds, not just the bounce-backs that prompted this legislation, can be carried out, whereby the directors simply will not get investigated or identified if the dissolved company is left alone. As I have mentioned, currently it is only by restoring these entities and putting them through an insolvency process that misplaced assets, other frauds, misfeasance and so on can be identified, leading to further action against these directors. I genuinely think there is some confusion—certainly for me and possibly the noble Lord, Lord Fox, and others—in understanding whether or not a company needs to be restored before further action can be taken. If it is not restored, what are the mechanics of a compensation order in respect of a company that does not exist anymore? We would like to see the evidence of what the Insolvency Service is up to. With a dissolved company remaining dissolved, the normal creditors—non-government creditors—stand to gain nothing from the compensation order because the fraud concerned related primarily to bounce-back loan fraud. This is clearly very important where the Government are the victim and we all want to assist them, but that does not help the wider body of creditors who have suffered I appreciate we are straying into some technical areas, and we are going to have to rely on assurances that compensation orders will be used by the courts for the benefit of all creditors rather than just HMRC. We are also, frankly, just going to have to wait and see what definition will be used for public interest. I do not think there has been any offer of assistance in defining public interest. We are going to have to see how many cases are dealt with by the Insolvency Service. That is why we have tabled Amendment 6, so we can see what happens and—as is our usual style—then suggest some helpful further steps that might be taken I am aware that the Insolvency Service, as has been mentioned, publishes an annual report, which I have read carefully; it was updated a couple of weeks ago. That shows that the Insolvency Service is a big and important agency. I was surprised to learn that it spends some £625 million per year. By statute, it has to report on its activities, and I was pleased to see that it has an 84% customer satisfaction result, on which I congratulate it and the Minister. But it is not clear to me from reading this report that the specific items requested in Amendment 6, particularly subsection (2) of the proposed new clause, would be required to be disclosed as separate, specific issues. I welcome the Minister’s views on how we can best achieve some transparency, and how the Government are getting on with implementing this Bill and achieving the aims we all seek.