Corporate Insolvency and Governance Bill - Consideration in the Lords: Hansard (Part 1)
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The following is the Hansard from today's debate in the House of
Lords on the Corporate Insolvency and Governance Bill. The
proceedings are still being transcribed. The remainder will be sent
later in the day. Report (and remaining stages) 1.30 pm
Relevant document: 14th Report from the Delegated Powers Committee
The Deputy Speaker (Lord Bates) (Con) My Lords, a limited number of
Members are here in the Chamber, respecting social distancing, and
if the capacity of...Request free trial
The following is the Hansard from today's debate in the House of
Lords on the Corporate Insolvency and Governance Bill. The
proceedings are still being transcribed. The remainder will be sent
later in the day.
Report (and remaining stages) 1.30 pm Relevant document: 14th Report from the Delegated Powers Committee
The Deputy Speaker (Lord Bates) (Con) I shall begin by setting out how these proceedings will work. A participants list for today’s proceedings has been published and is in my brief, which Members should have received. I also have lists of Members who have put their names to the amendments or who have expressed an interest in speaking on each group. I will call Members to speak in the order in which they are listed. Members’ microphones will be muted by the broadcasters, except when I call a Member to speak. Interventions during speeches or “before the noble Lord sits down” are not permitted, and uncalled speakers will not be heard. Other than the mover of an amendment or the Minister, Members may speak only once on each group. Short questions of elucidation after the Minister’s response are permitted but discouraged; a Member wishing to ask such a question, including Members in the Chamber, must email the clerk. The groupings are binding and it will not be possible to degroup an amendment for separate debate. A Member intending to press an amendment already debated to a Division should give notice of that fact in the course of the debate. Leave should also be given to withdraw amendments. When putting the Question, I will collect voices in the Chamber only. If a Member taking part remotely intends to trigger a Division, they should make this clear when speaking on the group. We will now begin. Clause 1: Moratoriums in Great Britain Amendment 1 Moved by
Lord Hope of Craighead “(ca) a list by the directors of all known creditors of the company,”Member’s explanatory statement This amendment is to assist the monitor in their duty to notify every creditor of the company of whose claim he or she is aware.
Lord Hope of Craighead (CB) [V] The amendment, which is in the same terms as one I moved in Committee, proposes an addition to the list of relevant documents that must accompany the director’s application for a moratorium. My concern has been that the system that the Bill lays down for informing creditors that a moratorium is in force, and when it will come to an end, is too weak, because the monitor’s duty is to notify only those creditors of whose claims he is aware. There is no suggestion in the Bill that he is under a duty to make inquiries. I proposed that, at the outset, the directors should provide a list of all known creditors of the company when making the application. When the Minister replied, he gave reasons for not accepting the amendment that suggested that he had not understood my point. He said that it had never been the Government’s intention that the moratorium should be used to “‘line up the ducks’ for a pre-pack administration”.—[Official Report, 16/6/20; col. 2092.] He added that, as with all administrations, the likelihood of a substantial return to unsecured creditors was small. I, however, had made no mention of going into administration. The purpose of the moratorium, as I understand it, is to keep the company alive as a going concern. However, freezing the debts for the period of the moratorium is bound to have consequences for the creditors. They might have to take urgent steps to avoid financial embarrassment until their bills are paid, such as adjusting their cash flow or seeking to extend their overdraft. They need to know what is going on. That is especially the case for creditors—many of them SMEs—whose debts are not secured. Unlike the banks and HMRC, they are likely to have nothing to fall back on if the moratorium does not succeed in rescuing the company. The issue was too important to be overlooked, so I decided to raise it again on Report, and I wrote to the Minister to explain why. Happily, I have received his reply, which is most useful, and for which I am very grateful. The essence of it, which I want to put on the record, is that the Minister agrees that “the monitor needs to have contact details for the company’s creditors at a very early stage … to enable the monitor to comply with their duty to notify creditors … In order that the proposed monitor can make the statements … that it is likely that a moratorium would result in the rescue of the company as a going concern, they will need to undertake enquiries into the financial position … of the company. … It is envisaged that the proposed monitor would … obtain a list of the company’s creditors” and their relevant details as part of these inquiries. “Guidance to this effect will be provided to insolvency practitioners … the monitor … will have to evaluate whether the information provided is of a nature they can rely upon, or whether they need to undertake further enquiries … to ensure they have a list of all creditors.” They can also take further measures during the moratorium to obtain any information they require, and this could include information about creditors. Information and feedback on the effectiveness of the measures in the Bill will be monitored, and use could be made, if necessary, of the power in Section A6(4) to add to the list of relevant documents. In the light of the information that the Minister has given me, I am satisfied that it would place an unnecessary burden on the directors to submit a list of the creditors when applying for a moratorium, as I was proposing. I would, however, ask the Minister to confirm two things: first, that my understanding of the position, as I have narrated it, is correct; and, secondly, that a copy of his letter to me has been placed in the Library. I beg to move.
Lord Leigh of Hurley (Con) I appreciate that the Government have never seen the moratorium as part of the administration legislation—they argue that the rules on administration are adequately covered elsewhere—but it is the job of this House to help the Government by explaining how events actually evolve in the world of business and fervently hope that the Government listen to us. I am very sorry that so many amendments from Committee did not make it to Report, in particular those from the noble Lord, Lord Stevenson of Balmacara, the noble Baroness, Lady Bowles, the noble Lord, Lord Hodgson, the noble Lord, Lord Palmer, and others. Wonderful real-world experiences were offered during Committee, primarily around the role, conduct and independence of the monitor, all of which have been lost, after being discussed in this House and the other place. That is a shame. The issues raised in my amendment attracted quite some comment and, if I may so, approval from all sides of the Committee, I think I am right in saying. I remain very grateful to noble Lords from all sides of the House who spoke in support in the Chamber and to me directly subsequently. I am grateful to the Minister and his officials, with whom I have had some very open and helpful conversations in the past few days. I was not graced with a letter as the noble and learned Lord, Lord Hope, was; none the less, we have had a discussion. There seems to be a fixation with rescuing the company. The company is no more than a vehicle. I think all this stems from the Enterprise Act, where there was confusion in the debate, but I hope there is no confusion now and that we can all agree that we want to arrange matters as best we can so that businesses and jobs, not necessarily companies, survive a liquidity crisis and stay alive. It may well be that sometimes an administration is helpful and a sensible outcome, but the current drafting puts pressure on the monitor to try to save a company where, frankly, there may be no point. Likewise, the desire to avoid pre-packs is misguided. Yes, there have been some abuses, which have been public and well-documented, but they are small and typically relate to small insolvencies, and the Small Business, Enterprise and Employment Act created the excellent Pre Pack Pool, which is now in real danger of collapse as a result of this Bill. I welcome Amendment 45, in a later group, which addresses this point. There is concern that pre-packs favour one particular purchaser, the existing owners, as they have the advantages of knowing the business and speed, so a moratorium in those circumstances is perfect. The time extension allows the monitor to ensure fair play on information access and for new buyers to be sourced and approached. However, it will be very difficult for a monitor to tell the court that administration is not likely. In fact, it will be the reverse. I spoke to an insolvency practitioner only last week who is working on a particularly troubled business right now, with some 10,000 employees and more than 30 different companies. Not all of them will be saved; at least some will go. However, the rest could be saved and the entire business could be saved, but under these proposals he will not get a moratorium, despite being certain that a solution can be found. He cannot take a group approach because under English law each company is a separate entity. He is beside himself in despair at this proposed legislation. Very few real-world rescues are ever done with existing entities. It is not always a bad result that a business is bought through administrators. If creditors lose out, at least there is a chance to recoup some of those losses through future trade. I am a little worried by the withdrawal of the Henry VIII powers in government Amendments 3, 8 and 11 in this group, as their removal may restrict the Government from making helpful changes. The Government are clearly more swayed by the appeal of the noble Lord, Lord Stevenson, than by mine. I ask the Minister to think again about whether those amendments achieve what he seeks. I hope he will listen to petitioners, some of whom he has now met with me, and commit at the Dispatch Box to consider a change, as sought in these amendments, if it is clear that business recovery will be impeded without the proposals that my noble friend Lord Trenchard and I seek. If the Bill does not give sufficient time for directors and monitors to find a sensible way out for businesses, there will simply be closures and asset realisations. I look forward to hearing what the Minister will say and very much hope that he will give me some assurances that the Government will find a way to keep an open mind, because I believe that if there were a Division, the House would support these amendments. 1.45 pm
Viscount Trenchard (Con) I speak in support of Amendment 2 and the other amendments tabled by my noble friend Lord Leigh, to which I have added my name. I declare my interests as listed in the register. I know a little about corporate restructurings, having worked in corporate finance and mergers and acquisitions for some 40 years. I thought that the amendments proposed in Committee by my noble friend made obviously good sense, and I have heard nothing from the Minister that causes me to change my mind—at least, so far. As I mentioned in Committee last week, this question was discussed during the debates on the Enterprise Act 2002. My noble friend Lord Hunt of Wirral said in the debate in Committee that “the greatest asset of a company is the people whom it employs … I believe that rescuing the company on its own is a pointless objective … the objective of preserving all or part of the company’s business would be beneficial to the employees of the business, creditors of the company who may be paid out of the proceeds of the sale of the business or from future profits, and of course it would be beneficial to the economy as a whole”.—[Official Report, 29/7/02; cols. 764-65.] My noble friend Lord Hodgson of Astley Abbotts said on Report that “by inserting … ‘and the whole or part of its business’… an administrative receiver or administrator” would be empowered “to deal even-handedly with the whole or part of the company’s business.”—[Official Report, 21/10/02; col. 1102.] Of course, the views of my noble friends in 2002 related to a different Bill from the one before your Lordships’ House today, but I nevertheless believe that their comments are equally relevant to the points we are considering now. New Section A6(1)(e) requires a monitor to say that in his view it is likely that a moratorium would result in the rescue of the company as a going concern. Even if the monitor thinks that the company’s business, or some part of it, would be rescued if the company could obtain a moratorium, this would not provide sufficient grounds for the court to grant a moratorium. Under the Enterprise Act 2002, obtaining a moratorium through administration is not as restrictive as proposed under the provisions of the Bill. It is necessary for an administrator to show that there is a reasonable likelihood of achieving one of three statutory objectives: rescuing the company as a going concern; achieving a better result for the creditors as a whole than would be likely on a winding up; and realising property in order to make a distribution to secured or preferential creditors. The second of those objectives is the one most often relied on as it includes the rescue of a business or one or more of several businesses when, as is often the case, it is impossible to show that the company as a whole can be rescued. Prior to 2002, the position was the same, although the purposes of administration were not precisely the same. They were: the survival of the company and the whole or part of its undertaking as a going concern; the entering into of a creditors’ voluntary arrangement; the sanctioning of a scheme under Part 26 of the Companies Act; and a more advantageous realisation of the company’s assets than would be effected on a winding-up. Again, the last of those four options was the one relied on where, even though a company was doomed because of the burden of debt, its business or a part of its business could be rescued. Under the new moratorium procedure, the only type of restructuring proposal that can be advanced is one that involves a company rescue. This means that the options available in a moratorium are significantly more limited than they would be in an administration. Perhaps the Minister can tell the House whether the Government are deliberately trying to restrict the use of moratoriums and do not want to give the directors that degree of freedom if they are trying to save the business but not the company. However, very often when a business is successfully rescued the company may also be rescued, although that category of company would not be able to use this new procedure. I understand that the Government believe that if rescuing a company’s business were sufficient grounds for a moratorium to be granted, the company would be tempted to use the moratorium to prepare for a pre-pack administration. If this is the case, perhaps my noble friend the Minister could explain to the House why the Government think so. As my noble friend Lord Leigh has already explained, companies as legal entities are hardly ever saved in an insolvency situation and the connection between widening the grounds for entering a moratorium and the possible abuse of the pre-pack mechanism is, I believe, tenuous at best. Pre-packs have developed as a mechanism for selling a company’s business immediately after it goes into administration, so that the administrator—not the directors—is responsible for breach of duty if the business or assets are sold for less than fair value. The moratorium is surely intended to prevent creditor action, but creditor action has never been a check on an abusive pre-pack. It would be a pity if the moratorium were to be limited to cases in which a debt restructuring is the only way forward, rather than other forms of business rescue. In conclusion, I think that the Minister has shown great wisdom in introducing so many amendments to dispense with Henry VIII powers, which the Government had thought they might wish to include—although I share my noble friend Lord Leigh’s reservations about some of them in the event that they may restrict the Minister from providing enough comfort on the points that he and I have raised.
Baroness Drake (Lab) [V] Amendment 13 would remove the exemption which payments in respect of pre-moratorium debts arising under a contract or instrument of financial services have from the payment holiday and from super-priority in the event of an insolvency process. Notwithstanding the Government’s amendments, real concerns remain that lenders may be able to circumvent their intent by the drafting of their lending agreements; the definition of accelerated debt could be sidestepped so that lenders can continue to bring forward debt and benefit from super-priority. It is unclear, for example, whether on-demand debt that is called during the moratorium would be caught by the definition of accelerated debt and debts accelerated prior to the moratorium would continue to be granted super-priority. Adding to these concerns is the width of the definition of financial institution debt which would qualify for super-priority, covering intra-company loans, for example. In addition, finance debts due prior to or in the moratorium continue to be exempt from the payment holiday. Debts due to the pension scheme are not, would not be payable and would be outranked in subsequent insolvency. That exemption and the super-priority given to that financial debt, which are permanent provisions within the Bill, will inevitably lead to novel forms of moral hazard when it comes to pension liabilities. This is a fast-track Bill containing permanent, major changes and scrutiny has consequently been fettered, but government Amendment 80 in this group gives a power enabling the Secretary of State, by regulation, to change the definition of moratorium debt and priority pre-moratorium debt. This is a welcome concession by the Government, because it implicitly recognises the arguments that many noble Lords have made that it allows the Government to respond to actual experience of gaming and perverse behaviours. Will the Minister confirm that the intention of Amendment 80 is to allow the Government to quickly address the risks other noble Lords and I have identified when they emerge and to change the definition of moratorium debt and priority pre-moratorium debt in response? Will the Government commit to monitor closely the impact of the provisions on moratorium debt and priority pre-moratorium debt, and to consult relevant bodies on the real concerns around super-priority status, the definition of accelerated debt and the implications for pension scheme debt?
Baroness Warwick of Undercliffe (Lab)
[V] Other noble Lords have set out in detail the problems that the Bill would cause as currently drafted. I emphasise just one point in relation to defined benefit pension schemes. The stability and effectiveness of the current system in dealing with insolvency has depended on unsecured pension debts ranking side by side—[Inaudible.] This has underpinned all valuation funding and covenant discussions. The super-priority status granted by the Bill to finance debts in an insolvency following a moratorium undermines that stability and endangers members of affected pension schemes, while preventing the PPF acting effectively as creditor. As I said in Committee, it also undermines the role of the regulator. However, the Government have clearly made efforts to address these concerns and go some way to addressing the issues raised by me and other noble Lords. I have been convinced that the Government want to make this work and will ensure that the PPF has access to and influence on discussions about recovery plans. The Secretary of State will have access to considerable Henry VIII powers in the Bill and will be able to intervene swiftly if it seems that restructuring plans and insolvency procedures are being abused, to the detriment of pension scheme members. So in thanking the Minister for the way he has responded to the concerns we in this House have expressed about the Bill, I urge him to stay alert to any attempts to undermine the assurances he has given that the position of pension scheme members will not be weakened, and that their lifeboat—the protective umbrella of the PPF—will not be undermined in any restructuring and insolvency discussions.
Baroness Bowles of Berkhamsted (LD)
[V] The idea of a moratorium is as a formal standstill, a breathing space for a company to trade out of its problems, get back on its feet or at least find a way to reorganise without the situation deteriorating due to a feeding frenzy of creditors, each trying to get at the assets before someone else does. For all essential suppliers other than financial institutions the moratorium terms are that they must continue with normal supply, with no demands for up-front payments or elevated prices that would destroy cashflows and undermine the purpose of a moratorium. But not for banks: they have no constraints and are free to demand accelerated payment. So there is a feeding frenzy exclusively reserved for the banks. 2.00 pm The government amendments recognise that accelerated payments are unfair on other creditors and strip any that are still unpaid of super-priority in an insolvency. However, the problem is that that does nothing about all the ones that have been paid, thereby hurting the company and making it more likely to fail. The government amendments do not remove the unfairness that exists when accelerated payments suck money out of the company, not only jeopardising the promised breathing space, jobs and business or company survival, but also reducing what will be left for others in an eventual insolvency. In an insolvency, unsecured creditors, pension schemes and small businesses will be hit hardest by the banks’ moratorium behaviour. The Minister said when we met that the Government hope that banks will not behave like that. I am sure that we would all like that, but it is unrealistic. That it can be done creates pressure for them to do just that, looking to their own profit. The fact that it will be in contracts will compel it to happen. It will not be a local, friendly manager exercising discretion; it is not as if we are looking at unknown behaviour, especially where smaller companies are involved. We have seen plenty of it, with restructuring groups like GRG and others, including behaviour that is reprehensible but not, in the end, prohibited or even limited to reasonable amounts. Of course it will happen. That is why there is the ipso facto clause for everyone else, to make sure of normal supply—breathing space. Action during the moratorium is the most effective. Holding off banks during the moratorium saves companies or businesses, and jobs. It is too little, too late to buy insolvency when the money is gone. Amendment 14 is simple. It stops the unfairness, preventing banks and financial creditors accelerating payment. To coin a phrase: stay the banks; protect business; save jobs. It is fundamental to the moratorium concept, and I intend to press my amendment to a Division.
Baroness
Altmann (Con) [V] I echo the words of many noble Lords in this debate, and I stress that I support the aims of the Bill and am very grateful to the Government for introducing so many amendments. It is testament to the power of and wisdom in this House that the Government’s amendments have significantly improved the Bill and reduced some of the risks that we highlighted during its earlier stages in our House. I particularly welcome the Minister’s amendments on security for pension schemes and the Pension Protection Fund. I declare my interests as set out in the register. However, I must agree with some of the words of caution that we have heard so far in this debate. Yes, there may be some improvement and it is welcome that, for example, government Amendment 80 would allow Ministers to step in if necessary, should there be gaming of the moratorium and the creditor priority. However, I have to agree with the noble Baroness, Lady Bowles, and other noble Lords, who have explained that there will be gaming—it is not a question of whether. The idea that banks will not behave like that does not reflect what many of us have already witnessed over the years in the real world. As my noble friend Lord Leigh of Hurley rightly said, there is expertise in this House which can inject into the current situation the real-world experience that could be so important in averting some of the problems we alerted the Government to during the Bill’s early stages. Financial creditors, including but not limited to banks, will be needed to potentially rescue a company that is going through the moratorium and to help it avoid insolvency. However, there are other elements such as intra-company loans, and in that case, there could be problems regarding recovery from creditors. I agree with my noble friend Lord Leigh that rescuing a business is not the same as rescuing a company—that is absolutely right, as my noble friend Lord Trenchard also explained. However, in many cases defined benefit pension schemes would not have an opportunity to recover money in future trading, should assets be stripped away and the creditor status be undermined by the leapfrogging that can occur with financial creditors. We must try to help save businesses and jobs through the liquidity crisis. I have added my name to Amendment 75 because the issue of jobs and a company’s workers is so important; they should have a role in this process. I hope that the Government and the Minister can reassure us of the intention to alert the Pension Protection Fund to risks and to step in should there be gaming. I support the intentions behind the Bill.
Baroness Kramer (LD) [V] It is not exceptional behaviour but standard practice to seek ways to accelerate payment to get it into the moratorium period. I would have been considered remiss in my responsibilities had I not made sure that, in the various legal contracts in which lending was arranged, clauses existed that would enable me to achieve that acceleration. As I also know from my own experience, acceleration is not the only issue; there is also the ability to make sure that a bank can take security when a company finds itself entering into financial crisis. That helps to move the financial institution’s debts much higher up the food chain. I hope that the language in the various amendments that try to deal with this problem is understood as dealing with the issue of security as a mechanism for acceleration, and not just clauses which very directly achieve acceleration.
Lord Hodgson of Astley Abbotts
(Con) I tabled a similar amendment in Committee, looking at how financial institutions and banks might game the system. When I listened to him, my noble friend the Minister seemed to give a positive answer—for which, many thanks—but when one reads col. 2094 of the Committee stage debate on 16 June, the words are not quite as strong as I had hoped. So I support Amendment 14 and want to press my noble friend a little further, for two reasons. The first is what I might call the Pepper v Hart reason. Courts can go to debates in your Lordships’ House and the House of Commons and use Ministerial Statements and replies to discern what Parliament’s wish was when legislation was passed. Not a lot was said in the House of Commons, because it all went through in a single day, but the words of the Lords Minister, the noble Lord, Lord Callanan, have been quoted extensively and will be so in future. He will probably have a starring role in a number of law cases in the years ahead. So I hope, as we come to the dénouement of the Bill, that he will be able to lay out the case clearly, cogently and simply. Insolvency can seem as dry as dust, but it is about people. It is about men and women who have struggled and given months and years of their life to building up a business, only to see it collapse before their eyes. Sometimes it is because of their incompetence, but often it is because of events over which they have absolutely no control, such as the pandemic. We therefore owe it to people like them to have absolute clarity about their position, their rights and their responsibilities. I will go back to the real-life example I gave in Committee; I ask my noble friend the Minister to boil down his response when he comes to reply. A struggling company; a £10 million term loan; £1 million is in default, and a pre-moratorium demand has been made. The company goes into the moratorium. Of course, the £1 million is a pre-moratorium debt and is therefore covered, but that demand is a default on the whole loan. Therefore, using the financial services cover, the bank says, “I want the £9 million, thank you very much.” Has that hole been blocked in what my noble friend is putting before the House today? I thought he said that he was going to, but this is quite complicated. It would be helpful for the House, and indeed for the law courts in future, if he could make it clear that that is the case—that is, that banks cannot game the system and use a pre-moratorium event that is protected under the moratorium to enforce claims under the moratorium because they are financial services. My second question concerns what I call the “Gulag issue”. In real life, in the example I gave, the act of default will mean that the company’s loan moves from its normal relationships to what is known as the “workout division”. Notwithstanding the sensitivities of the noble Baroness, Lady Kramer, the workout division is not a place for sensitive souls. It is charged, incentivised and tasked with enforcing the rights of the lender: the bank. Banking agreements have a good many pages of closely packed print, with all sorts of terms and conditions. So many times I have heard people say, “I got 1% off my interest rate and did not think about the other terms.” If your business is going to be successful because you are paying 1% less, you are in the wrong business. It is the terms and conditions that you need to look out for. Let me give an example of how that might work. I invite noble Lords to look at their overdraft statement when they go home tonight. It will say something like this: “You will be charged 3.5% or 4% above the bank’s base rate for the time being”—what the bank’s base rate is is a good question in itself—“but for unauthorised overdrafts you will be charged 19%.” Deep in the terms and conditions for the company I am talking about, there will be a similar clause. When you default, your interest rate goes up. Do the maths. That £10 million at 19% less the 4% that you were expecting to pay—making 15%—equals £1.5 million a year, or £30,000 a week. These are the sorts of things, and there are many other ways in which banks can enforce their conditions. 2.15 pm I go back to the point and repeat the words of the noble Baroness, Lady Bowles. Are the banks a party to the moratorium? Are the banks a party to trying to give these people some time, or can they take advantage of their position under the Bill? It would be helpful if my noble friend could make clear from the Front Bench, above peradventure, what the Government’s view is and how Parliament expects banks and financial institutions to behave during these difficult times. We know that it is difficult, but if everybody has to take some pain, surely the banks must not be allowed to ride roughshod over them and work to their own advantage. If we cannot give that assurance to industry and to people going into moratoriums, the whole concept of moratoriums will be largely redundant.
Lord Kerslake (CB) [V] The Bill contains some important benefits for companies that get into difficulties, which will help them, help the economy and protect jobs. Insolvent companies or companies that are likely to become insolvent can obtain a 20 business day moratorium period that will allow viable businesses time to restructure or seek new investment free from creditor action. A good company—sadly, good companies will be affected by the economic impact of Covid-19—would keep its workforce well informed and consult them as a matter of routine. However, we know that, in a period of duress, the employees are often at the back of the queue in finding out what is happening in their own company, even though they are likely to be significantly at risk—perhaps the most at risk—of redundancy, changes in terms and conditions or changes in pension as a consequence of subsequent restructuring, or indeed closure if no resolution can be found. In these circumstances, the provision in this amendment will provide an important safeguard and reduce the risk of employees being left out of vital decisions and discussions that will affect their livelihoods. I really hope that the Government can see their way to supporting this amendment, or something very close to it.
Baroness Bryan of Partick (Lab)
[V] Nearly 30 years ago, two academics wrote a paper entitled “The End of History for Corporate Law”. As often happens with such pronouncements, they were premature. The authors assumed that shareholder capitalism was unchallengeable. It is now common to hear senior executives and influential economists extol the importance of moving towards stakeholder capitalism. The chief executive of Black Rock, Larry Fink, wrote recently about climate change but said that sharing data should go “beyond climate to questions around how each company serves its full set of stakeholders, such as the diversity of its workforce”. The Financial Times reported that a business round table of 151 US chief executives has revised its concept of “purpose of corporation”. They have renounced shareholder value and would instead lead their companies to the benefit of all stakeholders—customers, suppliers, employees and communities. Mark Carney wrote recently in the Economist that companies would be judged on how they treated employees, suppliers and customers, by who shared and who hoarded, and that the corona crisis was “a test of stakeholder capitalism.” He might have had in mind companies such as easyJet, which has sought state aid after cancelling most of its flights but went ahead with a £174 million dividend payout while asking employees to take unpaid leave and face substantial changes to their terms and conditions. This amendment should be knocking at an open door. I am sure that noble Lords will want to accept it, and that what it calls for will become common practice before too long. It is a modest proposal that does no more than require a company to consult the representatives of its employees. I am sure that many of us would want to go further than that, and no doubt this is an issue that we will return to over the coming months and years.
Lord Hendy (Lab) [V] “Measures appropriate to national conditions shall be taken, where necessary, to encourage and promote the full development and utilisation of machinery for voluntary negotiation between employers or employers’ organisations and workers’ organisations, with a view to the regulation of terms and conditions of employment by means of collective agreements.” Another anniversary will be commemorated on 11 July, for on that day in 1962, as a member of the Council of Europe, the United Kingdom ratified Article 6 of the 1961 European Social Charter. The article reads: “With a view to ensuring the effective exercise of the right to bargain collectively, the Contracting Parties undertake … to promote joint consultation between workers and employers … to promote, where necessary and appropriate, machinery for voluntary negotiations between employers or employers’ organisations and workers’ organisations, with a view to the regulation of terms and conditions of employment by means of collective agreements”. This amendment does not seek the fulfilment of the Government’s obligation to promote collective bargaining on the consequences for workers in a company that is running into financial difficulties and the measures such as a moratorium to alleviate them, but it does require the fulfilment of the more modest obligation to promote consultation between workers and employers about such consequences. It is difficult to the point of impossibility to see what objection there could be to the imposition on directors of an obligation to hear from their workers—in this case their employees—their perceptions of and suggestions for ameliorating the company’s situation. Under the Companies Act, directors already have an obligation to take into account the interests of the employees, so it is really not asking much to require them to ask their employees to express their views. Given that the biggest impact of the moratoria and other measures relating to a company’s financial difficulties will be on the workers whose livelihoods are on the line, why not hear their voices? They will be the most ardent and innovative in finding ways of keeping the company alive. Certainly, the Minister and his team have offered no objection to the principle or the practicality of this so far. All that has been said is that employees are already protected and that the courts have a duty to ensure that arrangements are fair and equitable. The first point is hopeless. There is no extant legal obligation to hear the voices of workers, no obligation to bargain collectively, no obligation to consult save where collective redundancy procedures apply, and no requirement to have worker directors on the board. The second point is equally without merit. There is no provision for workers to be parties to, to be represented, or even to be heard in the specific court proceedings to which this Bill relates. Without hearing from representatives of the workers in respect of the measures being proposed, how can the court be satisfied that any measure is fair and equitable to them? I urge the Government to accept the amendment and to fulfil at least partly their international legal obligations.
Lord Hain (Lab) [V] There was a moment during the response of the Minister, the noble Lord, Lord Callanan, in Committee to various amendments aimed at protecting the interests of a company’s workforce in the moratorium process when I was reminded of the Hatton Garden safe deposit robbery in 2015, the biggest burglary in British legal history. The conspirators in that crime called carving up the proceeds “the slaughter”. One of the gang nearly missed out on the slaughter. He had bailed out after the first attempt to break in because he did not want to risk returning to the scene of the crime. Some of his co-conspirators felt that he had thereby forfeited any share of the proceeds. Fortunately for him, there was honour among thieves, and they relented and gave him a cut. The Minister argued that workers are already well protected and that consulting employees or their representatives in the moratorium process is unnecessary because the aim of the Bill is to keep companies in business. In his view, consulting employees would risk publicising a firm’s problems before it could be protected from creditor action, leading to more company failures—in short, that the workers should know their place, run along and let their betters deal with the problem. If he had patted them on the head, I would not have been surprised. Surely there should be a less patronising attitude to people who may have invested much of their working lives in a company that is now facing financial distress. For workers, insolvency puts more than just their jobs in jeopardy. They may have back pay at risk. Their pension rights may be in danger. Their redundancy rights may be under threat and their tax and national insurance responsibilities may be in doubt. Indeed, the company may even have defaulted on payments to HMRC already deducted from their pay. Their employer may be defaulting on its equal pay and equal rights obligations. Workers have a vital interest in the insolvency process. They deserve a voice in the consultation process and surely the Government cannot deny that; otherwise, they will be left where they are now—on the outside, at the end of a long tail of unsecured creditors, unrecognised, unheard and unwelcome, while the professional insolvency practitioners practise their black arts. Britain’s workers deserve better, and that is the purpose of Amendment 75. The amendment is very modest, simply requiring companies to consult their workforces. It imposes no vetoes by employees on the moratorium process and specifies no hurdles that have to be surmounted; instead, it simply imposes an obligation to consult. Surely the Government must agree to that principle or, alternatively, endorse an attitude that says in effect that company owners’ rights matter, creditor and debtor rights matter but employee rights do not. I urge the Minister—and, if not, then your Lordship’s House—to support Amendment 75 or, alternatively, as I now understand he might do, at least to give some proper guarantees that employees will not be left in the lurch. 2.30 pm
Lord Bourne of Aberystwyth (Con)
[V] I want to speak to Amendment 1, proposed by the noble and learned Lord, Lord Hope of Craighead, which relates to the directors supplying a list of creditors to the monitor. I supported this amendment in Committee. I have had the advantage of seeing the letter, shared with me by the noble and learned Lord, Lord Hope, and can see that my noble friend the Minister has gone some considerable way to allaying concerns by setting out proposals about inquiries that the monitor must make and the policing of the whole procedure by the Insolvency Service. I thank him very much for that. I think that that will be effective, and the letter was indeed very helpful. Like the noble and learned Lord, Lord Hope, I hope that it is shared with other noble Lords by placing a copy of it in the Library. Perhaps I may touch briefly on something else that I spoke about in Committee. I voiced concern at the lack of any express provision in the Bill requiring the monitor to be independent of the company. The monitor is an officer of the court and is required to be a qualified person, defined as an “insolvency practitioner”. That is reassuring up to a point but there is no express condition that the monitor should be independent of the directors of the company who appoint the monitor; nor is there any provision in the legislation for challenge of an appointment. Perhaps the Minister can put on the record today, or in a letter subsequently, how he sees the professional bodies policing the independence requirement, in the same helpful way as he wrote to the noble and learned Lord, Lord Hope of Craighead, on the inquiries relating to the requirement for the listing of assets and liabilities. Subject to that, I very much welcome the moves that the Government have made between Committee and Report. They have gone some considerable way to allaying concerns expressed in Committee.
Lord Palmer of Childs Hill (LD) [V] My concern goes back to the philosopher Thucydides, who said something along the lines of “Words change their meaning”. What are “financial creditors”? What is “not having an advantage”? Sometimes the meaning is in the eye of the beholder or in the minute printing of the 240 pages of the Bill. If Amendment 14 is agreed, as I hope it will be, I shall welcome the Minister’s assurance, at least for the record, that HMRC’s VAT debt, about which I spoke at least twice in earlier proceedings, will not be viewed as the debt of a financial creditor seeking yet more preferential terms. The Finance Bill 2019-21, which we have put aside and hardly mentioned during these debates, seeks to give preference to HMRC for VAT. This undermines the whole principle of this legislation, which I believe is, as the noble Lord, Lord Hodgson, said, based on the idea that “We are all in it together”. If, even unintentionally, the banks or HMRC are given preference in the Finance Bill 2019-21, we will not all be in it together; some will be more equal than others.
Baroness McIntosh of Pickering (Con)
[V] The duty of the monitor to notify creditors extends only to those creditors of whom the monitor is aware. What is welcome about Amendment 1 is the fact that it strengthens that. At the moment, there is no express duty to seek information about creditors from the company, and I feel that there is a very strong need for Amendment 1 to enable the monitor to do their work, given the time constraints regarding the moratorium under which they are working. I was pleased to support the amendment in Committee. I noticed that in the Minister’s reply setting out why, in his view, Amendment 1 is not necessary, he regrets that he did not have time to respond fully to the points made in Committee. That raises a broader point about parliamentary scrutiny. I hope that the normal channels will take note of this and that we allocate sufficient time to ensure full and proper scrutiny of a major piece of company law, albeit that for the most part it is time barred. It takes longer to correct a bad law than to make a good law in the first place. If we do not adopt Amendment 1 today, I believe that that will make the monitor’s position more difficult and that the position of creditors will remain very weak. I support the remarks of my noble friend Lord Bourne. In Committee I made similar points about the desirability of enhancing the independence of the monitor and there is no need to rehearse them today, but I stand by those comments. Finally, I turn to the Minister’s explanatory statement on government Amendment 3. Generally, I welcome the government amendments, which are preferable to the original Henry VIII clauses, although I am mindful of the remarks of my noble friends Lord Leigh and Lord Trenchard in this regard. However, I question the Minister’s justification of Amendment 3, which would leave out the definition of “the relevant documents” and replace it with the words “adding to the list of documents”. The statement says: “The power could subsequently be re-exercised so as to remove anything added.” That seems slightly peculiar, and I would welcome the Minister explaining it in more detail when he replies to this debate.
Lord Adonis (Lab) [V] I strongly support Amendment 75. I do not think that in practice it would make much difference, as it would simply introduce a right to be consulted. As my noble friend Lord Hendy said, it does not have any of the stronger elements of a requirement to negotiate or to take account of views—points that have been debated—although it is obviously a step in the right direction. However, the really powerful amendment is Amendment 14, and we look forward to the Minister’s response to it. It would, as many noble Lords have said, make it categorically and explicitly clear that the banks and other financial creditors may not seek to accelerate payment. The Minister’s response here will be crucial. The noble Baroness, Lady Bowles of Berkhamsted, has told us that the Minister said when she met him that the Government expected that banks would behave reasonably and would not seek to enforce repayment requirements unreasonably, whereas a succession of speakers, particularly the noble Lord, Lord Hodgson, and the noble Baroness, Lady Bowles, have made it clear that it is standard practice for them to take every opportunity they can to accelerate payments and that they will do so if the Bill is enacted without Amendment 14. So the House will want to listen carefully to what the Minister says in response to Amendment 14. If his argument is that it is his expectation that banks will not seek to accelerate payment, what grounds can he offer to the House to support that view when we have been given such strong views to the contrary?
Lord Holmes of Richmond (Non-Afl) [V] As the noble Lord, Lord Hodgson of Astley Abbotts, quite properly put it, this is detailed and technical law, but it is rooted in the purpose of protecting people. Similarly, the noble Lord, Lord Palmer, rightly highlighted the importance of meaning and how it changes and can be in the eye of the beholder. More significantly, I will say that everything that we have discussed today is to do with businesses which find themselves in the eye of the storm. I cannot match the 40 years that the noble Viscount, Lord Trenchard, has spent in this field, but I knocked out just over a decade in it and, like the noble Baroness, Lady Kramer, I was involved with a number of chapter 11, US-side insolvencies, as well as a number of pre-packs on this side of the Atlantic. I ask my noble friend the Minister: why the coolness towards pre-packs? Like all vehicles, they have their annoying whines and dodgy brake lines from time to time, but overall they were pretty successful, as conceived in the original legislation. Does my noble friend agree that a lot of the difficulty around this Bill and the amendments we are discussing in this group seems to come down to an understanding of the fundamental difference between the company and the business? It seems that much of this legislation has been constructed with the approach of a company staying in business rather than the reality that the business does not need to stay within the company. Can my noble friend assure the House that nothing as currently drafted will impact businesses which find themselves, largely as a result of the Covid pandemic, in distressing situations? If he cannot give that assurance, does he agree that it is prudent to consider a number of these amendments in this group and subsequent groups? Similarly, on furlough finance, which was incredibly speedily and effectively rolled out by the Chancellor, does the Minister agree that, if we fail to get this legislation right and the clauses amended as proposed, we will fail to gain the wider benefits from the furlough finance and employees who have rightly benefited from furloughing will find themselves with no business at the end of that period? Finally, does my noble friend agree that there is a real, clear and present danger that, if we do not address the amendments, the reality may be that we save the company, lose the business, fail the purpose and miss the point? 2.45 pm
Lord Fox (LD) I also thank the Minister and the departmental team for listening to what was said in Committee and coming up with the first of a set of government amendments that were sensitive to that debate. However, I shall speak to two amendments in this group that carry my name, Amendments 14 and 75. Amendment 14 has been elegantly spoken to by my noble friends Lady Bowles, Lady Kramer and Lord Palmer and, on the Bench opposite, by the noble Lord, Lord Hodgson, and others. It sets out the overriding issue in this debate: that of tiptoeing around the financial institutions. My noble friend Lady Bowles set it out with great clarity: where all other groups within the company in a moratorium have to set aside and go into stasis, the banks do not. Even though it may be implied, it is important that the Bill is very clear that we expect a standstill. The noble Lord, Lord Hodgson, said that the Minister may yet star in legal disputes of the Pepper v Hart variety. One way for him to avoid such notoriety would be to accept Amendment 14 and accept that we need a clear undertaking that this behaviour cannot be allowed. As my noble friend Lady Kramer and the noble Lord, Lord Hodgson, set out, if it can happen, it will happen. Teams within banks will be under an obligation to their owners to do it. Therefore, it needs to be set aside. A number of Peers talked about banks gaming the situation, but this is no game for employees or for creditors. If it were a game, the pawns could well be the employees. That is why Amendment 75, which also carries my name, is important—albeit modest, as the noble Baroness, Lady Bryan, said. The noble Lord, Lord Hendy, set out in legal terms why some status for employees needs to be established; nothing else in the Bill does that. However, it should be more than workers just being in receipt of communication; they should have a seat at the table and be consulted. Somewhere there is a feeling coming through this that involving the employees is somehow anathema to saving the business. I should declare my interests, one of which is that I am a member of the German-British Forum. In Germany, this discussion would not be needed. Businesses in Germany know that workers have a central role in their strategic future—and what could be more strategic than the sort of things that we are discussing today? So Amendment 75 is a very modest suggestion, and any watering down of it by the Government would be disappointing.
Lord Stevenson of Balmacara (Lab)
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