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Royal Assent

(Royal Assent)
Thursday 25th June 2020

(11 months, 3 weeks ago)

Lords Chamber

Read Hansard Text Bill Main Page

The following Acts were given Royal Assent:

Birmingham Commonwealth Games Act,

Divorce, Dissolution and Separation Act,

Corporate Insolvency and Governance Act.

Corporate Insolvency and Governance Bill

(3rd reading (Hansard))
Tuesday 23rd June 2020

(11 months, 4 weeks ago)

Lords Chamber

Read Hansard Text
Department for Business, Energy and Industrial Strategy

Third Reading

Motion

Moved by

Lord Callanan Portrait Lord Callanan
- Hansard - - - Excerpts

That the Bill do now pass.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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My Lords, first, I thank the House of Lords Public Bill Office and the House clerks for their support and their extremely hard work in ensuring that this emergency Bill could be expedited through the House to support businesses as a matter of urgency in these unprecedented times.

Secondly, I place on record my thanks to the Bill team, Andy Ormerod-Cloke, Muneera Lula, Jess Bradbury and all the team, both in BEIS and in the Insolvency Service, who have worked so hard on the Bill. I am sure Members will appreciate the untold hours that went in on evenings and weekends to assist in the progress of this legislation and to provide help and guidance to me, my noble friends Lady Bloomfield and Lord Howe and many other noble Lords who we have spoken to and consulted over the last couple of weeks on all sides of the House. I am grateful to all Members for their contributions. The Bill team and the Insolvency Service did a splendid job operating in, let us not forget, extremely difficult circumstances. They can be proud of their work and they are a credit to the Civil Service.

I also thank my private office team, Marty and Jenny, for ably assisting me in co-ordinating the various bits of government to come together on the Bill. I pay tribute to the Opposition spokesmen: the noble Lords, Lord Stevenson and Lord Fox. This made a pleasant change from my previous job, piloting the Brexit legislation through, where, as Members can imagine, there was no common ground whatever. This has been an historic day: I have actually won three votes in the House, which is the quite amazing pinnacle of my ministerial career. It can only be downhill from here. I am grateful to them for their constructive engagement. They have acted responsibly, recognising that this is emergency legislation, and have worked with us to improve the legislation where that was required. On behalf of the Government, we have been pleased to accept the many constructive contributions. The Bill leaves this House in a much better and improved form than when it entered it. We have been responsible and have acted where necessary, and I hope Members will agree that the Government have responded to their concerns.

I mentioned them earlier but I the other members of the ministerial team—my noble friends Lady Bloomfield and Lord Howe—who have assisted me in pushing this measure through. As a result of this legislation, I hope that many otherwise viable companies will no longer face the threat of insolvency. The measures that the Bill introduces will give our businesses the vital support that they need to keep themselves afloat, thereby preserving jobs and maintaining productive capacity, enabling the foundations to be late for this country’s economic recovery.

Once again, I thank noble Lords for their scrutiny of the Bill. It has, as I said, been much improved thanks to the amendments that have been made during its passage. I hope Members will think that the Government played a constructive role in reacting to many of the concerns they have raised. I hope that the other place will promptly accept these amendments so that the Bill can come into force as a matter of urgency. I beg to move.

Lord Fox Portrait Lord Fox
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My Lords, the Minister was right that this is an important Bill because it is about people’s jobs, livelihoods and future prosperity. I think we all agreed from the outset that that was the objective here, and in many respects we have managed to fulfil it. I join the Minister in thanking the Public Bill Office, which as usual has been extremely helpful when it comes to marshalling our amendments.

I especially pick out the Bill team. Normally when I look at the Box over there, there is a team looking tired, wan and reasonably pleased that their job is reaching the end. They must have had some very long days. I assume that the Bill team are somewhere out there in the ether, so I thank them for their work.

I thank my own team: my colleagues who have sat through this process, on the Benches and virtually, and Sarah Pughe, who has kept us more or less on the straight and narrow. I thank my opposite number the noble Lord, Lord Stevenson, and the ministerial team—the noble Lord, Lord Callanan, the noble Earl, Lord Howe, and the noble Baroness, Lady Bloomfield—for their open and cheerful approach to the Bill. I think we got a glimpse of why the noble Lord was cheerful: this Bill is nowhere near as bad as what he has just been doing.

That is true, but it was still a difficult Bill. It is a big Bill of mixed intent, in that some of it is permanent and some of it is not, and it was an accelerated process. It has not been easy, and of course we leave here wishing that things were different from the way they are. This feels like the end of something but I suspect, given the powers and the intent that the Government have to trim, modify and improve the Bill, it may be a question not of “Farewell” but rather of “See you later”.

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara [V]
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My Lords, I apologise for my complete blankness when coming to the end of my peroration on Amendment 75. For the record, the second very important concession made by the Minister, who was very kind in not picking me up on not being able to remember it, was that the new monitor position will be strengthened in terms of guidance so that directors will have a responsibility for informing employees about the moratorium arrangements and reassuring them about their conditions in future. I thank him for that as well. If there is a way in which Hansard can reinsert that into my original statement then I would be more than grateful, but I am sure that is probably not allowed.

I join others in thanking all concerned for getting us through this process. It has been very interesting to do it. We started with a lot of meetings with Ministers, which was very good because the ground was clearly laid out, so we enjoyed that. We were introduced to officials, from whom we have had superb support through the whole process. I join the Minister in saying that they are a credit to the Civil Service, working in extraordinary conditions and coming up with the goods all the time.

I thank the noble Lord, Lord Fox, and his colleagues for their support. It is good to find that people have similar views about issues. It is sometimes hard to find the exact point at which we should work together but we have managed to do so despite the conditions. Thanks should also be said to the House officials for allowing us to operate in a hybrid House in a way that those who have been here for more than a few years would probably have thought impossible, given the difficulties involved and the changes required—but here we are. They have given us three and a half days of work and they have been superb in making sure that we had the service required in order to contribute. I have been doing this remotely throughout while others have been present, and even remotely it has been a satisfying situation.

All Bills are a trial of stamina, this one probably more than most. I think we all share a sense of exhaustion, having reached its final moments. It is interesting that having to do this in an accelerated way has also picked up a lot of issues that will need further work. I hope the various committees and other agencies in the House who are watching this will learn the lessons that have to be learned about how to do emergency legislation and accelerated legislation, what can be done well and what needs a bit more time spent on it.

Finally, it is a curious feature of the hybrid House that staring for hours into tiny screens and trying to talk to people through electronic devices that constantly let us down seems to build a much stronger working relationship. I have enjoyed this time very much. I have enjoyed working with everyone concerned, including my staff, Dan Harris, my Whip, Chris—my noble friend Lord Lennie—and others who have supported us. I have also enjoyed working with Ministers and others from across the House. Long may it last.

Bill passed and returned to the Commons with amendments.

House adjourned at 7.01 pm.

Corporate Insolvency and Governance Bill

(Report stage (Hansard))
Tuesday 23rd June 2020

(11 months, 4 weeks ago)

Lords Chamber

Read Hansard Text
Department for Business, Energy and Industrial Strategy

Report (and remaining stages)

Relevant document: 14th Report from the Delegated Powers Committee

Lord Bates Portrait The Deputy Speaker (Lord Bates) (Con)
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My Lords, a limited number of Members are here in the Chamber, respecting social distancing, and if the capacity of the Chamber is exceeded I will immediately adjourn the House. Other Members will participate remotely, but all Members will be treated equally, wherever they are. For Members participating remotely, microphones will unmute shortly before they are due to speak—please accept any on-screen prompt to unmute. Microphones will be muted after each speech. I ask noble Lords to be patient if there are any short delays between physical and remote participants. I should remind the House that our normal courtesies in debate still very much apply in this new hybrid way of working.

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

1: Clause 1, page 3, line 26, at end insert—

“(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 Portrait Lord Hope of Craighead (CB) [V]
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My Lords, Amendment 1 in my name is the first of 32 in this group, but it has no connection with the others. Fortunately, I need to speak to my amendment only briefly and do not intend to press it, for reasons I will explain.

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 Portrait Lord Leigh of Hurley (Con)
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My Lords, there are seven amendments in my name and that of my noble friend Lord Trenchard: Amendments 2, 6, 7, 9, 10, 16 and 17. All seven, however, address pretty much the same point, which is to allow the directors of a company, or its monitors—both those in the UK and those overseas—to enter into a moratorium, extend its life or end it, if they believe that, even if there is no hope for the company itself, the business operating within that company is likely to be saved.

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.

Viscount Trenchard Portrait Viscount Trenchard (Con)
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My Lords, I am also minded to support Amendment 1, moved by the noble and learned Lord, Lord Hope of Craighead, because it should not be too difficult a task for the directors to undertake and would be likely to save time afterwards, once the monitor starts his work. However, given that the noble and learned Lord has expressed satisfaction with what the Minister wrote to him, far be it from me to doubt his learned judgment on that matter.

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 Portrait Baroness Drake (Lab) [V]
- Hansard - - - Excerpts

My Lords, I refer to my entry in the register of interests and shall speak to Amendment 13 in my name. In this group the Government have brought forward helpful amendments to seek to prevent bank debts and other financial lendings that are accelerated during the moratorium from gaining super-priority status. This is a welcome change. However, serious risks remain of gaming to give current or future lenders access to super-priority, avoid pension liabilities and incentivise insolvency over rescue for certain creditors.

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 Portrait Baroness Warwick of Undercliffe (Lab) [V]
- Hansard - - - Excerpts

I added my name to Amendment 13 and I set out in Committee my concerns about the Bill. As I said then, I fully support the intention behind it—that the disruption caused by Covid-19 should not be allowed to trigger the failure of otherwise financially viable companies—but I was anxious, and I remain anxious, that some of the permanent and far-reaching proposals would be damaging to pension funds and to their members in the longer term. I assumed that this damage was unintended and was caused by the speed with which this package of protective measures had had to be introduced, and I am pleased that the Government have gone some way to acknowledging this in the amendments they have brought forward.

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 with debts owed to other unsecured lenders. 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 Portrait Baroness Bowles of Berkhamsted (LD) [V]
- Hansard - - - Excerpts

My Lords, I draw attention to my interests in the register. I support Amendment 13 and what has been said already about it. I am a signatory to that amendment, but I shall concentrate on Amendment 14. The Times this morning reports that Intu, owner of shopping centres, is seeking a standstill on loans from its banks, otherwise it will go into administration. Without commenting on the merits of the case, save to mention that coronavirus has stopped rent payments, the facts are writ large: it is all in the hands of banks.

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.

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 Portrait Baroness Altmann (Con) [V]
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My Lords, I support Amendments 13 and 14. I have added my name to the former, as well as to Amendment 75 in this group, which I will briefly speak to.

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 Portrait Baroness Kramer (LD) [V]
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My Lords, my name is added to Amendment 14. I cannot better the speeches from my noble friend Lady Bowles and the noble Baroness, Lady Altmann. However, I ought to add a few words, because I am probably one of a small number of people in this House and the other place who have been a creditor to a company taken through the Chapter 11 process in the United States, as I was when I worked there for a major US bank.

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 Portrait Lord Hodgson of Astley Abbotts (Con)
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My Lords, I put my name to Amendment 14. Before I speak to it, I draw the House’s attention to my entry in the register of interests.

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.

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 Portrait Lord Kerslake (CB) [V]
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My Lords, I was pleased to add my name to Amendment 75 and congratulate the noble Lord, Lord Stevenson of Balmacara, on proposing it.

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 Portrait Baroness Bryan of Partick (Lab) [V]
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My Lords, I too speak in support of Amendment 75. Although it is much weaker than the original amendments, it touches on an important debate that is happening not just in the UK but in most of the developed capitalist countries about the status of employees in a company.

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 Portrait Lord Hendy (Lab) [V]
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My Lords, I too shall speak to Amendment 75. In precisely one week’s time, we will celebrate the 70th anniversary of the ratification by the United Kingdom on 30 June 1950 of Convention No. 98 of the International Labour Organization, one of the two most fundamental conventions in international labour law. It has not only been expressly ratified by 167 nations but is considered part of customary international law. Article 4 reads as follows:

“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 Portrait Lord Hain (Lab) [V]
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My Lords, following the excellent speeches of my noble friends Lord Hendy, Lady Bryan and Lord Kerslake, I wish to support Amendment 75.

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.

Lord Bourne of Aberystwyth Portrait Lord Bourne of Aberystwyth (Con) [V]
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My Lords, I refer noble Lords to my interests as listed in the register and the published declarations therein.

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 Portrait Lord Palmer of Childs Hill (LD) [V]
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My Lords, this Bill, when enacted, will be the guide—even the bible—of the monitor. I agree with Amendment 14 and shall speak on it very briefly. My noble friends Lady Bowles and Lady Kramer have explained in detail the reasons for supporting and promoting the amendment, which, to remind noble Lords, would place a restriction on enforcement and legal proceeding, stating that banks and other financial creditors must not have an advantage.

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 Portrait Baroness McIntosh of Pickering (Con) [V]
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My Lords, I support the sentiments expressed by the noble and learned Lord, Lord Hope, in moving his Amendment 1, and I thank the Minister for his letter, which has been shared with us.

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 Portrait Lord Adonis (Lab) [V]
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My Lords, after an hour and five minutes of debate, I do not think that there is much more that needs to be said in favour of these amendments. We have heard a succession of powerful speeches. As the noble Lord, Lord Hodgson of Astley Abbotts, said, the speech that matters now is the Minister’s. We need to know why he believes that the amendments are not necessary, as I understand he is likely to say in respect of a number of them, and we might then come back on that, either now or at Third Reading.

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 Portrait Lord Holmes of Richmond (Non-Afl) [V]
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My Lords, I am pleased to address the amendments in this group, not least the seven in the names of the noble Lord, Lord Leigh of Hurley, and the noble Viscount, Lord Trenchard. I have not had the benefit of seeing the now-famous letter, but I look forward to considering that in due course.

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?

Lord Fox Portrait Lord Fox (LD)
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My Lords, we have heard a number of your Lordships speak with great authority, not least the previous speaker, on this important subject. As the noble and learned Lord, Lord Hope, set out, there is a great number of amendments in this group, and I shall not attempt to speak to all of them. I have sympathy with the spirit of the amendments set out by the noble Lord, Lord Leigh. Like the noble Viscount, Lord Trenchard, I shall listen to the Minister’s response to those questions.

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 Portrait Lord Stevenson of Balmacara (Lab) [V]
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My Lords, this has been a very good debate and I thank all those who have contributed. In a sense, the debate around this group of amendments reflects the problem that we have had with the Bill. The Government, rightly, want to progress and to press ahead, but the issues that we are covering are of such substance that they vastly outstrip the time that has been made available for us to do it—hence our needing the Minister to address at the Dispatch Box a wide range of points before many of us can decide how we will deal with our amendments.

The noble and learned Lord, Lord Hope, and the noble Baroness, Lady McIntosh of Pickering, asked about the exchange of letters over the simple question about whether a list of creditors should be provided. The noble Lord, Lord Leigh, and the noble Viscount, Lord Trenchard, asked a justifiable question about whether rescuing a business is the same as rescuing the company, given that in many cases the business is the important issue, particularly when it is linked to the jobs that would be involved. Does the Bill adequately deal with that?

My noble friends Lady Drake and Lady Warwick want to know from the Minister directly at the Dispatch Box whether Amendment 80 goes far enough to recognise the gaming and perverse behaviours that will inevitably follow the moratorium arrangements. In addition to that, my noble friend Lady Warwick specifically asked about the issue of super-priority for financial funds in relation to defined-benefit pensions. Will the Government, with their power, stay alert to the dangers? We need to know.

The noble Baroness, Lady Bowles, made a persuasive case about the way in which the breathing space set up by the moratorium would effectively be destroyed by accelerated payments, and the following speaker, the noble Baroness, Lady Kramer, made that point exactly by explaining why gaming is natural, or even appropriate, behaviour for banks and other lenders, which of course have to maximise the return they are likely to get. If that is inevitable, are the measures in the Bill sufficient? Will the Minister do what he can to reassure us about that? And the noble Lord, Lord Hodgson, whose extensive experience and anecdotes flowed through his speech, rightly raised the Pepper v Hart concern and the issues that will come through in future legislation in relation to what has been said today.

I suppose what I am getting at is that it would have been better if we had had proper amendments and time to debate them in individual groups—not all clumped together in different areas—and did not have to rely on the Minister’s very difficult task of covering all the points raised in today’s hour and a quarter of debate and being convincing about how the words that appear in the Bill, and in the Act when it is published, will be sufficient. However, we are where we are and we need to make progress.

Amendment 75 may be a rather modest issue, as has been said, but it is important in itself as well as for what it might say about the future. I thank the noble Lords, Lord Kerslake and Lord Fox, and the noble Baroness, Lady Altmann, for supporting me in this amendment, and I thank my noble friends Lady Bryan of Partick, Lord Hendy, Lord Hain, Lord Adonis and others for speaking in support. At heart, the amendment seeks to recognise that workers in a company care about its future and, like all other stakeholders, should be informed about what is going on. It supports the view that in a crisis situation all those who work in a company are in it together, and employees may have as much at stake as others who have a financial stake in the company. It also makes the point that those who work in the company in the round, or in the business that the company is carrying out, can and should make a contribution to save it if it is in crisis. Only good can come from a proper process of engagement, information exchange and an exchange of ideas.

I recognise that in a moratorium situation speed may be of the essence. Any arrangements set up that would slow that down also carry the risk that information will be fed out into the public, and that may promote creditor action. We must guard against that but, on the other hand, we should also aim to bring everyone together, not to split off certain groups who, as I hope to argue, could contribute. However, and I wait to hear the Minister deal with this issue when he comes to the Dispatch Box, there may be other ways of dealing with this—measures that could perhaps take into account evidence gained as we go forward. As we discovered in Committee, there may indeed be other issues that need to be wrapped into this first step—the beginnings, perhaps, of a movement to rebalance the relationship between employers and employees and to promote collective bargaining. This may not have been the right amendment or even the right Bill for that approach, but maybe this can be the first step on that journey.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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My Lords, I thank everyone who has contributed to this excellent debate. The noble Lord, Lord Stevenson, correctly characterised this as a number of different subjects loosely grouped together under the heading of moratorium provisions, and I gladly accept his challenge to try to satisfy the House and deal with all the points that have been raised.

First, to start at the beginning, Amendment 1 was moved by the noble and learned Lord, Lord Hope of Craighead. I thank him for his letter following Committee; as I conveyed in my response to him, I confirm that a copy of that has been placed in the House Library. I agree with him that the monitor needs the details of the company’s creditors at an early stage to enable the monitor to comply with their duty to notify the creditors. I also confirm to him that I agree with the explanation that he provided in his speech. We have recently published draft guidance for monitors that would include that the proposed monitor is expected to ascertain the assets, liabilities and ongoing financial commitments of the company when judging its likelihood of rescue, and that would of course include details of creditors.

I turn to the amendments tabled by my noble friends Lord Leigh of Hurley and Lord Trenchard. I thank them for raising these issues and tabling the amendments, which I know derive from their enormous experience in this area. I wrote to my noble friend Lord Leigh on 17 June. I hope he received a copy of that letter; if he did not, I apologise and will gladly give him another copy. The amendments seek to expand the focus of the moratorium from the rescue of the company to the rescue of the company’s businesses or parts of that business. I am grateful to them, particularly my noble friend Lord Leigh, for taking the time to meet me and officials to discuss that with his various restructuring experts and for them to highlight their concerns to us. In response to my noble friend Lord Trenchard, the moratorium is intended as a company rescue procedure upstream of a formal insolvency procedure. If a pre-pack is the settled intention of the company and its adviser, the moratorium is clearly not for them.

It has long been the Government’s policy that the new moratorium be built around a company in financial difficulty—that is, companies having access to a breathing space before such time as the company itself is beyond rescue. For that reason, the statements made by the monitor on entry to the moratorium and, similarly, the requirements at extension and termination of the moratorium are indeed focused on the rescue of the corporate vehicle. This policy was widely consulted on and received significant support. However, I recognise the point made by my noble friends that the amendment is supported by some rescue professionals working in that field. Still, I reassure them today by telling them that we will be monitoring the operation of the moratorium closely once the Bill comes into force, and we will not hesitate to take action if that is required.

I turn to Amendments 13 and 14, tabled by the noble Baronesses, Lady Drake and Lady Bowles, which seek to change how financial services debts are treated in a moratorium. This is a complicated area so I hope the House will bear with me. The Government want to avoid lenders exercising their rights to accelerate their pre-moratorium debt, thereby potentially gaming the system through a moratorium. That is why amendments have been tabled in my name, and I will talk more about them later, to exclude financial services’ pre-moratorium debts from super-priority or protection from compromise where the debt has been accelerated during the relevant period. The amendments in my name do not prevent a financial services creditor exercising a termination or acceleration clause; nor do they remove the requirement that if the accelerated debt is not paid then the monitor must bring the moratorium to an end. These are important provisions that will encourage lending to companies in difficulty and support the operation and stability of financial markets. The Government want to encourage financial services firms to keep lending to companies in distress. Including debts to these firms in the payment holiday concept could disincentivise them from doing so. That could leave some companies in a moratorium without the finance that they need to recover. In other words, it could jeopardise the very purpose of the moratorium in the first place.

In addition, we have excluded certain financial services contracts from the prohibition of termination clauses. This is vital to ensure that financial markets continue to operate as they do now. To not exclude these contracts could carry wide-reaching, systemic risks to market stability, as market participants could find their transactions suddenly terminated. Legal certainty over how transactions will be treated is vital to the operation of these markets. I appreciate that many noble Lords have raised concerns about this matter, but I hope that the amendments tabled in my name will allay at least some of their concerns. I will talk in a little more detail about those amendments shortly.

Amendment 75, in the name of the noble Lords, Lord Stevenson and Lord Fox, the noble Baroness, Lady Altmann, and the noble Lord, Lord Kerslake, seeks to insert a requirement that the company consults employee representatives before it is eligible for a moratorium. The intention of the moratorium is to enable the rescue of the company as a going concern. This will of course produce a better outcome for employees. A requirement to consult with employees’ representatives would risk the company’s financial problems being publicised before it receives the protection of the moratorium. It could lead to action being taken by creditors, such as looking to take enforcement action before a moratorium prevents them doing so, which could then force the company into early insolvency —the very thing the moratorium is of course intended to avoid.

A company’s workforce is essential to its success and it is very important that its interests are protected. The moratorium provisions include strong protections for employees. For example, a company in a moratorium will be required to continue paying wages and salary during the moratorium. If wages and salary are not paid, the monitor is required to bring the moratorium to an end. Additionally, the measures allow employment tribunal proceedings and other proceedings involving a claim between a worker and an employer to proceed during a moratorium. This is in contrast to other types of legal processes that are prevented unless permitted by the court. Should the company fail to pay employees during the moratorium, the employees would receive priority treatment for payment of wages and salary owed to them in a subsequent administration or liquidation commencing within 12 weeks of the moratorium ending.

The guidance for monitors will also be strengthened to include a requirement that the monitor should ensure that the directors of the company have informed employees that a moratorium has come into force, and that the moratorium does not affect their employment rights. That is a very important statement. However, the moratorium is a new procedure and will be subject to a review to ensure that it works as the Government intend. That review will include assessing the impact of the measures on employees. I can tell the House that the Government will bring forward that review from five years from Royal Assent to no more than three years from Royal Assent.

In the event that the review establishes that there has been a negative impact upon employees as a result of the moratorium, I further commit to the House today that the Government will bring forward appropriate proposals to address that. In addition, I say to the noble Lord, Lord Hendy, that a creditor or any other person affected by the moratorium—which would include an employee—may challenge an action or actions of the monitor in court, on the grounds that their interests have been unfairly harmed.

I move on to a number of the amendments tabled in my name. Not all companies that enter a moratorium will be rescued. Due to this risk of failure, it is important to offer some insulation for those who continue to trade with a company during the moratorium. Where a company enters administration or liquidation within 12 weeks of the end of a moratorium, any unpaid debts that relate to obligations entered into by the company during the moratorium will receive priority in the administration or liquidation. Pre-moratorium debts that are excluded from the payment holiday definition—for example, employee wages, rent, goods supplied during the moratorium, and debts under financial services contracts—will receive similar treatment. These debts are also given protection from being compromised in a company voluntary arrangement, scheme of arrangement or restructuring plan proposed by the company within the same period. This super-priority puts these creditors at the top of the payment waterfall. Only debts owed to fixed-charge creditors will rank above them.

As I said when referring to the amendments tabled by noble Lords on this subject, creditors of pre-moratorium debts under contracts involving financial services may accelerate their debts for payment. Financial services contracts are excluded from the payment holiday definition to ensure that the new reforms do not affect the operation of financial markets, and that financial market participants have legal certainty to facilitate the efficient functioning of those markets. This will give financial services lenders the incentive to continue lending to companies entering a moratorium.

As many noble Lords pointed out in Committee, where a financial services creditor accelerates its debt, that may lead to worse outcomes for other creditors, including a company’s pension scheme, if the moratorium ends and another procedure is entered within 12 weeks, triggering the super-priority protection. This could create an incentive for financial services creditors to exercise their rights to accelerate pre-moratorium debts for payment shortly before or during the moratorium. The Government want to prevent firms gaming the system through a moratorium. These amendments therefore exclude pre-moratorium financial sector debts from super-priority, or protection from compromise, where the financial services debt has been accelerated between the proposed monitor giving their statement on the likelihood of the company’s rescue and the end of the moratorium.

These amendments do not prevent a termination or acceleration clause being exercised; nor do they impact on the requirement that the accelerated debt be paid. But the amendments do remove the super-priority or protection for such pre-moratorium debts in a subsequent insolvency or restructuring process. This disincentivises those financial services creditors from seeking to accelerate their pre-moratorium debt solely to benefit from super-priority should the company fail, or to obtain protection from compromise if a restructuring proposal is put to them.

I say in response to the noble Baroness, Lady Drake, that the Government believe that these amendments remove the risk of gaming the system, as I have outlined, but we appreciate that the financial services industry, like other aspects of the economy, changes over time. For this reason, my amendments include a power to make regulations that will allow the Government to change the definitions of moratorium debt and priority pre-moratorium debt as used in these protection provisions. We will of course consider using the powers to amend the definition of pre-moratorium debts, if needed. As these are the debts that receive super-priority or additional protection, the Government will be able to react quickly and decisively to any changes in market behaviour.

I appreciate that many noble Lords have raised concerns over the number of powers in the Bill. I hope, however, that they can appreciate the importance of this new power and the damage that could be caused to creditors, including pension funds, if the Government were not able to act quickly to tackle abuses in this area. Finally, there is also a minor and technical amendment to clarify which pre-moratorium debts will benefit from super-priority or protection in the circumstances outlined above.

I suspect that I have spoken long enough on this group for most noble Lords, but lastly I will answer the question from my noble friend Lord Bourne of Aberystwyth. The monitor must be an authorised insolvency practitioner and abide by professional and ethical standards. The monitor should assess threats to their independence and act accordingly, declining an appointment as a monitor if they are unable to mitigate a threat to an acceptable level.

With all those reassurances, and given the amendments that the Government have been able to table in these areas, I hope that I have been able to satisfy the concerns of noble Lords. I therefore commend these amendments to the House.

Baroness Henig Portrait The Deputy Speaker (Baroness Henig) (Lab)
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I have received a request to ask a short question for elucidation from the noble Lord, Lord Fox, so I call on him to ask it.

Lord Fox Portrait Lord Fox
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In reference to Amendment 75, the Minister talked about the danger of employees leaking the state of the business. In my experience of acquisitions and disposals in continental Europe, where the pre-briefing of employees is legally required, there has never been an issue with employees leaking the information. The leaks have only ever come from advisers, usually banks. What grounds does the Minister have for making that statement?

Lord Callanan Portrait Lord Callanan
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I do not think that I used the word “leaking”. We want the moratorium to be a light-touch procedure with the minimum level of bureaucracy. Of course, it goes without saying that any information being disclosed from whatever source of a company’s intention to go into this procedure could have serious adverse consequences if certain creditors seek to pre-empt the operation of the moratorium. However, we have built concessions into this part of the Bill. I hope noble Lords will be able to accept them. I take on board the noble Lord’s points, although I did not use those words.

Lord Hope of Craighead Portrait Lord Hope of Craighead [V]
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I am very grateful to those noble Lords who spoke in support of my Amendment 1. I am grateful to the Minister as well for giving me the two assurances which I sought when I introduced the amendment.

I feel that there was a note of some disappoint from some noble Lords that I would not press the amendment, so I will explain very shortly why I took that decision. The letter that was circulated—I am grateful to those responsible for doing that—sets out in some considerable detail the various points which one needs to bear in mind as background to the wording of the Bill. It does, of course, require one to give rather more weight to the guidance than what one finds in the Bill’s wording, which I said was somewhat weak, but I am prepared to accept that guidance and test the matter against the point which the Minister made in Committee that adding a burden on to the directors of the company when a company needs to enter into the procedure as quickly as possible would be undesirable if to do so would be unnecessary.

That really is the essence of the point I asked myself: am I satisfied, in view of what the Minister said in his letter, that the burden would indeed be unnecessary? In the end, the answer to that question was yes. For these reasons—and I express my gratitude again to the Minister for his helpful letter—I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Amendment 2

Tabled by

2: Clause 1, page 3, line 31, after “company” insert “or the company’s business or part of that business”

Lord Leigh of Hurley Portrait Lord Leigh of Hurley
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My Lords, I take the assurances from the Perspex-covered Dispatch Box that the Minister will monitor the situation. I take this opportunity to apologise: I did not mean that I had not received a letter; I meant that it was not as satisfactory as the noble and learned Lord, Lord Hope, found it. There were insufficient assurances. I also suggest that the noble Lord, Lord Fox, meant bankers and PR advisers. On the basis of the Minister’s categoric assurances that he will monitor the situation and take action as necessary if it is apparent that companies are not able to be saved but businesses can, I will not move the amendment.

Amendment 2 not moved.

Baroness Henig Portrait The Deputy Speaker
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We now come to the group beginning with Amendment 3. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or any other amendment in this group to a Division should make that clear in debate.

Amendment 3

Moved by

3: Clause 1, page 3, line 44, leave out “changing the definition of “the relevant documents”” and insert “adding to the list of documents”

Member’s explanatory statement

This amendment narrows the Secretary of State’s power to change a list of documents, so that it is confined to adding to the list. The power could subsequently be re-exercised so as to remove anything added.

Earl Howe Portrait Earl Howe (Con)
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My Lords, in moving Amendment 3 I will also speak to the other government amendments grouped with it. I begin by thanking my noble friend Lord Blencathra and the Delegated Powers and Regulatory Reform Committee, including the ever- helpful clerk team, for their quick work in scrutinising the Bill. As always, they have made important recommendations and the Government have sought to accept as many of them as possible. In last week’s debate, my noble friend Lord Callanan stated that we would listen to the concerns expressed and consider them carefully. We have done so.

The amendments tabled by the Government have taken on board the concerns raised by the committee and by noble Lords on the number of Henry VIII powers in Clause 1 on moratoriums. As a result, we have tabled amendments that will remove three of the Henry VIII powers in Clause 1 from the Bill: those in new Sections A10(4), A11(5) and A13(9). We have also tabled amendments that will restrict the power in new Section A6(4) so that it can be used only to add to existing requirements, rather than to amend them.

In the light of concerns about the breadth of the power under Schedule 1—specifically paragraph 20 of new Schedule ZA1—we have tabled an amendment that will restrict the scope of that power. The amendment means that the power will no longer be able to be used to amend paragraph 2 of new Schedule ZA1, which prevents companies from being eligible for a moratorium if they are or have recently been subject to a moratorium or other insolvency procedure.

We have considered the points rightly raised by the committee and by noble Lords on Clause 18—the general power that enables the Secretary of State to temporarily amend corporate insolvency and governance legislation. The committee recommended that we introduce a restriction on the use of the power in Clause 18 so that the Secretary of State must consider there to be an urgent need to do so. Amendment 47, tabled by the Government, fulfils this recommendation. Amendment 49 will further restrict the power under Clause 18 by amending Clause 22 so that the expiry date for using the power cannot be extended beyond two years after Royal Assent.

Clause 23 enables consequential, incidental, supplementary or transitional provisions or savings to be made in connection with provision made by regulations made under Clause 18. We have tabled amendments to address the DPRRC’s recommendation here, so the power will be changed to the “made affirmative” procedure when used to amend primary legislation. This will provide both Houses with the opportunity to fully scrutinise any use of the power, as has been asked for.

In the light of the committee’s recommendation and the strong feeling demonstrated by many noble Lords, we have tabled Amendment 109 to change the parliamentary procedure for exercising the majority of regulation-making powers in Schedule 14, on meetings of companies, from the negative to the “made affirmative” procedure. This will provide for greater parliamentary scrutiny of regulations made under those powers.

Amendment 108 retains the negative procedure where regulations are made to shorten the period in respect of which companies and other bodies can make use of temporary easements around meetings in Schedule 14. That period already expires on 30 September and I would not envisage that we will wish to bring that date forward. Should we do so, however, the negative procedure will continue to apply to the necessary regulations. That is consistent with powers to shorten the life of other temporary provisions in the Bill.

Clause 41 originally temporarily changed the resolution procedure from the affirmative procedure to the negative procedure for specified other powers dealing with moratoriums. We have tabled an amendment to change the temporary procedure to the “made affirmative” procedure, as recommended by the committee and asked for by noble Lords.

Finally, we have also tabled amendments that accept the committee’s recommendation on the need to add a condition to Clause 39, which contains the power to change the duration of the temporary provisions, to limit its use so that it can be exercised only where an extension is required to deal with the effects of Covid-19.

Where, after careful consideration, a decision was made not to accept the committee’s recommendations, it was in general done to ensure that we could provide specific sectors with the certainty they required and to provide confidence to lenders. I hope noble Lords will, on reflection, understand our decision to retain these powers and, in some cases, to keep the resolution procedure as negative where it would have had an adverse effect to do otherwise.

I hope it is clear from the number of amendments tabled by the Government that we have listened carefully to noble Lords’ views and that we have responded substantively and appropriately. I beg to move.

Baroness Fookes Portrait Baroness Fookes (Con) [V]
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My Lords, before I speak to Amendment 48 in my name, I thank the Minister for taking on board so many of the issues raised by the Delegated Powers Committee and the Constitution Committee about the extensive use of delegated powers. I believe in giving credit where it is due and do so now.

However, I was seeking a little more in Amendment 48. This amends Clause 21, which requires the Secretary of State to keep the regulations made under Clause 18 under “constant review” and, if satisfied that they are no longer needed or proportionate to their purpose, to make new ones amending or revoking. That sounds fine at first, but what does “constant review” really mean? Who is going to do the constant reviewing—a very busy Minister with other things on his mind, or his very busy civil servants? My amendment seeks to keep them on the straight and narrow, so to speak, by suggesting that the Secretary of State should review these amendments every three months and report to Parliament. I hope that my noble friend might take this on board, but I am not holding my breath.

Baroness Taylor of Bolton Portrait Baroness Taylor of Bolton (Lab) [V]
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My Lords, I echo what the noble Baroness, Lady Fookes, said. She and I serve on the Constitution Committee, which raised quite a few concerns about this Bill. I want to say a few words about Clause 22. As the Minister outlined, the Government are now adding a limitation to it so that the expiry date cannot be extended beyond two years after Royal Assent. That amendment is very similar to the one that I moved in Committee. I am very pleased that the Government have acknowledged what the Constitution Committee said about the extent of the power that was being given, and I am glad that this change is being incorporated in the Bill.

Having said that, and having welcomed the changes that the Government have introduced in other areas, there are some very significant general concerns, that I and many others have, that have been highlighted by this Bill and by the extent of the government amendments that have had to come forward following Committee. Committee raised a series of genuine problems, some of which the Government have addressed, but this illustrates some of the dangers of fast-tracking legislation, even when, as the noble Lord, Lord Callanan, said, there have been previous consultations. It certainly illustrates the dangers of using emergency legislation. We all accept that emergency legislation in this area is needed because of Covid-19, but it illustrates the difficulty of using emergency legislation to make permanent changes at the same time in this very rushed way.

I ask the Minister to bear in mind that we will have other legislation coming forward. I hope that Ministers will learn the lessons of this legislation. This is a complex Bill—the previous debate showed that—and this is not really an adequate way of scrutinising such complex issues. Therefore, I hope that when we have other legislation because of Covid-19 or Brexit, the Government are mindful and give time for proper consideration of all aspects of such Bills.

Having said that, I welcome the specific change to Clause 22, and I am very pleased that the noble Lord, Lord Callanan, having said last week that he would look at this again, has produced this government amendment.

Lord Balfe Portrait Lord Balfe (Con) [V]
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My Lords, I want to say a few words in support of Amendment 48, tabled by the noble Baroness, Lady Fookes. I know from experience that when you have a requirement to report on anything without a time limit, there is always the tendency not to do it. There is always something more pressing, and even if the Minister raises it, the civil servant will say, “Well, no one has actually asked for it, Minister, and we have got this or that.” The only way to keep a piece of legislation or a policy under review is to have it timetabled. Whether it is every three months, four months or six months, the key point is that you have a timetable and you have a requirement to report at the specific point of that timetable, because then it gets into the system.

I urge the Minister, thinking not of himself but of Ministers in years to come, to accept this amendment or a close variant of it, that, crucially, puts in a time limit. A refusal today could snooker us when trying to get reports in the future, as we end up with parliamentary questions such as, “When is the Minister proposing to review?” and answers saying, “He or she is certainly thinking about it”, but not getting the review. I urge the Minister, looking to all our political futures, to accept some sort of time limitation. As such, I am very happy to support the amendment tabled by the noble Baroness.

Lord Wallace of Tankerness Portrait Lord Wallace of Tankerness (LD) [V]
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My Lords, my colleagues on the Constitution Committee, the noble Baronesses, Lady Taylor and Lady Fookes, have made their points very clearly, so I am very happy to rest behind their submissions.

Baroness Northover Portrait Baroness Northover (LD) [V]
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My Lords, I raised in Committee that there were numerous Henry VIII powers in the Bill, as the Delegated Powers Committee flagged in its devastating report. I am very glad that the Government have responded to the criticisms of the Delegated Powers Committee and the Constitution Committee by bringing forward these amendments, even if they are not comprehensive.

I am glad that we have been able to scrutinise the Bill in this House in a way that simply did not happen in the Commons. This Bill is indeed a mixture of emergency and permanent changes. I note particularly that the Government propose affirmative procedures in Amendments 58, 66 and 67, and “made affirmative” procedures in Amendments 68, 69, 72 and 73. The notes say that it is either affirmative or “made affirmative”—although I note what the Minister, said—in Amendment 109. I welcome these amendments. Those serving on the Constitution Committee have tabled Amendments 48 and 50, which bring more precision to this, and I hear what they have to say. Although I welcome what the Government have brought forward, I hope that the Minister can give further assurances.

Baroness Anelay of St Johns Portrait Baroness Anelay of St Johns (Con) [V]
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My Lords, last week in Committee I expressed my concern about the Government’s extensive use of Henry VIII powers and I was one voice among many. Today, I welcome the Government’s amendments in this group, most of which respond positively to the concerns expressed in Committee. For example, in Clause 1, Amendments 5, 8 and 11, and Amendment 76 to Schedule 1, narrow or remove the Henry VIII power. Another couple of examples of changes can be found in Amendment 69 to Clause 42 and Amendment 72 to Clause 43. They convert the negative procedure for regulations into the “made affirmative” or—as the noble Baroness, Lady Northover, has just said—affirmative procedure.

When the Delegated Powers and Regulatory Reform Committee, under the chairmanship of my noble friend Lord Blencathra, issued its excoriating report, it made the point in paragraph 22 that

“another procedure exists under which an affirmative instrument may be made and come into force before it is approved by both Houses. This is known as the ‘made affirmative’ procedure. Under this procedure, the instrument is able to come into force as soon as it is made, but it will automatically cease to have effect if it is not approved by both Houses within a specified period of time.”

It is a welcome use of the “made affirmative” procedure that we see today, and I believe that we will see it in regulations laid before the House later this week, on Thursday, from another department.

It is good that the Government have listened to the House and taken action. However, I appreciate from what my noble friend Lady Fookes and the noble Baroness, Lady Taylor of Bolton, said that there is perhaps some need for consideration of time limits. I very much look forward to my noble friend Lord Howe’s response to Amendment 48.

I take the opportunity to put on record my thanks to my noble friend Lady Bloomfield, for her letter answering questions I raised during the debate in Committee on the group of amendments to Schedule 14 including my Amendment 143. I had raised concerns about the position regarding charities, with particular reference to those established either by Act of Parliament or by royal charter. The noble Lord, Lord Stevenson, when withdrawing his amendment, which led the group, was kind enough to ask the Government to clarify how the measures in the Bill would apply to charities, and, where relevant, to their trading subsidiaries. It was encouraging to receive the following positive reassurance from the Government by letter, on Friday. I will read it, mainly to put it on the record, and because it meant that I was able to avoid retabling an amendment today:

“many large charities (however structured) operate wholly owned subsidiaries structures as companies to undertake trading activities in order to generate income for their parent charity. I can confirm that such subsidiary companies will benefit from the measures in the Bill.”

That was a welcome statement from my noble friend and was welcomed by charities.

The Bill is important for business and I wish it a swift passage from here onwards.

Baroness McIntosh of Pickering Portrait Baroness McIntosh of Pickering [V]
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My Lords, I have no substantive remarks to make, other than to congratulate my noble friend Lord Howe on taking on board the comments made by the committee.

Baroness Barker Portrait Baroness Barker (LD)
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My Lords, a number of Members of your Lordships’ House may wish to claim that it was the force and power of their oratory that caused the Government to think again, but I have a sneaking suspicion that the mere prospect of the noble Baroness, Lady Fookes, leading a band of opposition rebels was enough to concentrate minds—and I am very glad that it did. There was broad consensus around the House that the powers taken within the legislation were far too broad. I am glad that the noble Earl, Lord Howe, has come back and talked in detail about those which have been ceded and those which have not.

Towards the end of his remarks, the noble Earl said that the Government had retained some regulation-making powers to address the needs of different sectors, should it become apparent that regulations need to be made to save businesses in certain sectors. That is the issue to which I draw attention, following on from the remarks of the noble Baroness, Lady Anelay of St Johns. Like me, she has an interest in what happens in the charity and social enterprise sector. Welcome though the letter from the Minister was—exactly as the noble Baroness just said, it talked about charities with wholly owned subsidiary trading companies which give back their profits to the charity—a number of charities have different company forms, and there remains a lack of clarity in the Bill about some of those entities.

I am very pleased that the noble Lord, Lord Callanan, and his officials have talked to me about this. The Bill applies to those charities which are companies limited by guarantee—it is mostly community interest organisations that will fall within this—but it will not apply to charities that are unincorporated, nor to excepted charities and royal charter charities. There is also a big consideration around the extent to which the Bill will apply to community benefit societies, mutuals and co-ops. I am not asking the Minister to reiterate the detail of that today. I merely draw attention to the fact that there may be matters to which it is necessary to return when the Government make regulations under the Bill.

I signalled to the noble Lord, Lord Callanan, one of the issues that has been drawn to my attention by the museum sector. We have a number of independent museums—not the large museums set up under an Act of Parliament, nor those associated with local government—and they are typically charitable companies. They have a very big fear. If they are in danger, and a number of them currently think that they may well be, their collections immediately become part of the assets of any insolvency procedure. The big concern is that, if there is no exemption for those assets in regulations, later on this year a large part of Britain’s cultural heritage may suddenly come up in a fire sale. That would be extremely damaging, not just to those organisations but to the local economies that they support as part of the tourism sector and so on. All they are asking is that, when it comes to making regulations under the Bill, there be consultation with them and with the charity lawyers, accountants and insolvency practitioners who have expertise within what is, I know, a very niche but important part of company law.

That said, I add my support to the noble Baroness, Lady Fookes, and her Amendment 48. What she is asking for seems entirely reasonable.

Lord Holmes of Richmond Portrait Lord Holmes of Richmond [V]
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I am pleased to speak in support of Amendment 48 from my noble friend Lady Fookes. As ever, she makes a point that is pertinent and clear, and that is absolutely required at this stage. In doing so, I also congratulate my noble friend Lord Blencathra and the members of the Delegated Powers Committee on all their work in this area. As other noble Lords have said, the Government are in listening mode on this. That can be only a good thing, and it is largely down to the persuasive power of my noble friend.

Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe (Con) [V]
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My Lords, I thank my noble friend the Deputy Leader for his many amendments, designed to moderate the overuse of delegated powers in this important legislation. The legislation is vital to easing the burden of events on businesses, especially smaller or less well-capitalised businesses, of which sadly there are more every day.

I was particularly concerned about the lack of an end date for the use of the emergency powers, but government Amendment 49 appears to meet my concern. I also thank my noble friend Lady Fookes, the noble Baroness, Lady Taylor, and others for their effective scrutiny.

Lord Fox Portrait Lord Fox
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My Lords, this will be something of a novelty but I am going to be gracious. As is appropriate, I congratulate the Government on bringing forth Amendment 49, as did the noble Baroness, Lady Neville-Rolfe, and on sweeping away as many as possible of the Henry VIII clauses, as they are known. My noble friend Lady Barker set out the challenge for this Bill and the reasons for retaining some powers to change and mutate it as it goes forward. Because of the haste and scale of the Bill, there is a great challenge from non-conventional businesses, so to speak.

The point about museums is a very good example of where it is a question not just of the future of the museum but the future integrity of a collection, which suddenly becomes an asset. While it may not be possible to save a museum, it should be possible to save a collection—but, when very many collections are going up for sale at the same time, clearly the capacity to deal with that is eliminated; that is just one very niche example of the challenge for the Government. In this set of amendments, the Government have shown an ear to the debate and have reacted accordingly.

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara [V]
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My Lords, as has already been said, this has been a good debate. While we must await the individual amendments, I think the judgment of the House so far is that the Government have changed their original proposals sufficiently to satisfy the House and, more importantly, the specialist committees that have been looking at particular details; we picked up from my noble friend Lady Taylor the considerable concerns that were around at the time.

The noble Earl, who is also the Deputy Leader of the House, might wish to swap hats when he comes to respond to the debate, as there are perhaps points that need to be taken back and listened to within the usual channels in relation to the dangers of fast-tracking complex legislation of this nature and the need to make sure that we have sufficient time and learn the lessons, as my noble friend Lady Taylor said. It is not something that we often hear in this House, but we do need to listen: this whole process of fast-tracking and then trying to pick up on the run the difficulties that come up and is really not an adequate way of scrutinising, as she put it. We hope that that lesson will be learned in a way that will allow us more time and more consideration.

Finally, I thank the noble Baroness, Lady Anelay of St Johns, for picking up the point that we both shared in Committee in relation to charities. Like her, I am pleased that the point has been noted and a response issued. I still think that there are concerns around some of the other bodies with which we as a Parliament and as a society should be concerned: the good work of credit unions, friendly societies, social enterprise companies, community-interest companies and co-ops. These, of course, share the common thread that they are often set up outside the norms of company law, for the reason that they can operate better when they are not part of the overall character of the Companies Act. But, inevitably, there are intersection points and issues, which have been picked up. The point made by the noble Baroness, Lady Barker, that certain independent companies trading as museums might find that the collections on which they depend may be at risk is obviously a worry that the Government will want to take back. I think those are the important points.

Earl Howe Portrait Earl Howe
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My Lords, I thank my noble friend Lady Fookes and the noble Baroness, Lady Taylor, for the amendments which they have tabled, and I am grateful to all noble Lords who have spoken in this short debate. I will say at the outset that I understand and take on board the concerns expressed by the noble Baroness, Lady Taylor, and the noble Lord, Lord Stevenson, on the use of emergency legislation and the risk that amendments to such Bills will be necessary.

I can assure the House that the Government do our very best to draft legislation accurately and fully before bringing a Bill before the House. However, I feel sure that noble Lords will understand that there will always be a risk of amendments being required to the Bill as it progresses through Parliament, even with the best will in the world. To the extent that the Government have listened to concerns expressed during the course of the Bill, I am sure that noble Lords would not wish to criticise amendments that have come forward in response to such concerns.

Amendment 48 raises the matter of accountability for the Secretary of State when the power under Clause 18 is used. First, noble Lords will be aware that any use of this power would be through regulations subject to the “made affirmative” procedure, which means that they must be debated and approved by both Houses. The temporary amendments will last for a maximum of six months, with further debate if they are to last longer than that. As my noble friend Lady Fookes reminded us, the Secretary of State has a continuing duty to review any temporary amendments made using the power. But I suggest to her that a further report every three months would be likely to replicate information being provided to Parliament through other processes.

The Minister’s duty is a legal duty. That is not in any way a licence to keep matters conveniently out of the in-tray, so to speak. Having been a Minister myself, I know that officials simply do not allow a Minister to do that. All these temporary measures will, inevitably, be subject to constant attention, both in Parliament and outside, so I would strongly argue that the amendment is unnecessary. As I made clear earlier, amendments have been tabled by the Government to restrict the use of the power in Clause 18, so it can be exercised only if the need for the provision made by the regulations is urgent.

Amendment 50 provides for a sunset provision for the general power in Clause 18. As things stand, the power may not be used after 30 April 2021, but this expiry date may be extended. This would be for a period of no more than a year, although there is no limit to the number of times that the power to extend may be used. Amendment 50 would limit the power to extend the sunset date to one use only, which would mean that the very latest the power in Clause 18 could be used would be 30 April 2022. I do recognise the concern that this House has about the potential for the expiry date to be extended indefinitely. That is why the Government have taken the step of tabling an amendment which would mean that the absolute latest date that the power will expire will be two years after the Bill is given Royal Assent.

I hope that these government amendments, individually and collectively, will provide noble Lords with sufficient reassurance that the power will be used for proper and proportionate purposes and for an appropriately limited time. By the same token, I hope that I will have satisfied my noble friend and the noble Baroness, Lady Taylor, enough to enable them to feel comfortable in not moving their amendments when they are called.

Before I sit down, I would like to make a few points in response to the noble Baroness, Lady Barker, and the noble Lord, Lord Fox, about charities and, in particular, museums. As they know, the measures in the Bill will apply to all charities that are structured as a company; there are over 30,000 of those. In addition, the Bill will apply certain measures to charities that are structured as charitable incorporated organisations; there are over 20,000 of those.

The Department for Digital, Culture, Media and Sport and the Charity Commission have been closely involved in discussions on both the Bill’s permanent measures and temporary emergency measures and on how they can be extended to incorporated charities. Most of those discussions have been in the context of preparing this emergency legislation to respond to the Covid-19 pandemic. In the limited time available, it was considered proportionate to focus efforts to extend the Bill’s provisions to the largest group of incorporated charities that would require specific provision in the legislation—namely charitable incorporated organisations, of which there are over 22,000 in England and Wales and 4,500 in Scotland.

We do recognise that museums are facing exceptional challenges because of Covid-19, and I can tell the noble Baroness and the noble Lord that we are actively exploring a range of ways to support them at this time. Unfortunately, I cannot be more specific than that, but I hope that they can be reassured to the extent that this is not a matter that will be spoken about today and then conveniently put aside. This is active work in progress and we fully recognise the concerns that have been raised about museum collections.

My noble friend Lord Balfe raised the use of the powers in Clause 18. Perhaps I can give him some further and better particulars on that. Temporary amendments to relevant legislation may be made by statutory instrument using the “made affirmative” procedure, as I mentioned, and so will be subject to debate and approval in both Houses. As I also mentioned, those amendments may last for a maximum of six months, after which they may be extended if they are still needed; again, that would be by statutory instrument using the “made affirmative” procedure, so there would be a further debate and the approval of both Houses would be needed. As my noble friend Lady Fookes drew attention to, there is a continuing requirement on the Secretary of State to keep temporary amendments under review, to revoke them if they are no longer needed or amend them as appropriate, so the parliamentary scrutiny applied to this part of the Bill is very real. I hope that my noble friend is reassured by that.

I hope that I have said enough to enable my noble friend Lady Fookes not to move her amendment when we come to it. In the meantime, I beg to move Amendment 3.

Amendment 3 agreed.

Amendment 4

Moved by

4: Clause 1, page 4, line 23, at end insert—

“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by section 126 of the Pensions Act 2004, the Board of the Pension Protection Fund.”Member’s explanatory statement

This amendment extends the monitor’s duty to give notice that a moratorium has come into force.

Baroness Henig Portrait The Deputy Speaker
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I remind noble Lords that Members other than the mover of an amendment and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or any other amendment in the group to a Division should make that clear in the debate.

Lord Callanan Portrait Lord Callanan
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My Lords, the amendments in my name make provisions relating to pension schemes in the moratorium and the restructuring plan. Although the moratorium is not an opportunity for employers to walk away from their liabilities, it may become the point at which preparations for and discussions about a restructuring proposal begin. Where the pension scheme would be a large unsecured creditor in any insolvency, should the employer ultimately fail, restructurings can have a significant and immediate impact on the expected outcome of the scheme.

There is the possibility that the company may seek to reschedule payments to provide working capital to give time to shore up its operations. This might result in lower payments to the scheme for a period of time. A rescue may also involve certain other creditors, such as new lenders providing rescue finance, taking security over company assets. This would mean that there would be less available for other creditors, including the scheme, in the event that any such rescue ultimately failed.

Some insolvency procedures are designated as “insolvency events” under existing pensions legislation. One effect of such designation is that the Pension Protection Fund has a statutory role to play, acting as a creditor in place of the trustees of eligible schemes. However, the new procedures are different. They are not qualifying insolvency events, as they are focused entirely on giving the company every opportunity to achieve a rescue as a going concern. This would be the best outcome for a pension scheme: moving forward with the support of its newly rescued sponsoring employer.

Nevertheless, there is concern that these procedures could result in the pension scheme being disadvantaged as an unsecured creditor of the company. The PPF, as the provider of protection for members of eligible schemes in specified circumstances, could potentially face a greater loss. An example of this would be if the company subsequently fails and the scheme falls into the PPF with a larger deficit than it originally had.

Consequently, it is agreed that there is a need to build in specific protections. These focus on the interests of the scheme and its members, and the interests of the PPF and its levy payers. This would be by ensuring that the PPF has a seat at the table in any restructuring proposal and that its voice is heard. After all, it is the statutory compensation scheme for members of eligible defined benefit schemes, and ultimately bears the risk for the scheme should the company subsequently fail.

The challenge has therefore been to strike the right balance between the interests of the trustees, the board of the Pension Protection Fund, the company and its creditors. Taken together, these amendments achieve this balance. They provide for both the PPF and the Pensions Regulator to get appropriate information in the case of both a moratorium and a restructuring plan. The regulation-making power will allow the Secretary of State to provide for the board of the PPF to act in the place of the trustees of the scheme as a creditor in certain circumstances. The board of the PPF and the Pensions Regulator will have the right to the same information as creditors, concerning the start and end point of a moratorium and any change in the monitor, in specified circumstances. The board of the PPF will have the same rights as trustees to challenge in court the monitor’s or director’s actions in specified situations where the interests of the trustees as a creditor are considered to be unfairly harmed by those actions.

Where a restructuring plan is proposed and the company is a sponsoring employer, provision is made for the board of the PPF and the Pensions Regulator to receive the same information sent to creditors, in specified circumstances. This means that they are informed that a proposal has been made and they can then consider what action, if any, to take.

In respect of both the moratorium and the restructuring plan, where the trustees of a PPF-eligible scheme are a creditor of the company concerned, the proposed amendments provide a regulation-making power. This power will give the board of the PPF the ability to exercise the creditor rights of the trustees; again, in appropriate circumstances. These rights include attending the creditors’ meeting, voting on the restructuring plan and making representations to the court. The powers are drafted to allow an appropriate balance between the trustees and the Pension Protection Fund’s interests by allowing creditor rights to be exercised concurrently where appropriate. Conditions can also be placed on the exercise of any rights given to the board of the PPF.

Restructuring will always involve trade-offs. Employees will be concerned that the rescue ensures that their jobs are secure, but at the same time they will be interested in the impact on the company pension scheme if they are a member. The changes tabled in my name have balanced the interests of employees and scheme members with those of a company and its creditors, giving them all the best chance for survival, in our view. I beg to move.

Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted [V]
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My Lords, I welcome the amendments tabled by the Government to address the position of the Pension Protection Fund and the Pensions Regulator where there is a relevant scheme. The amendments give them the right to be notified of moratorium events and give the Pension Protection Fund rights to challenge the monitor or directors, vote as a creditor and make representations to the court.

An amendment on the issue that remains unaddressed was originally tabled in Committee by the noble Baroness, Lady Altmann; we have tabled one on Report with her support. The noble Baroness, with her great experience in pensions, will speak next.

Amendment 15 concerns the status of pledged assets and whether the court can give permission for their disposal without the Pension Protection Fund’s permission. In the absence of an amendment, those assets are not protected, which unravels the basis on which settlements over funding and deficits are made with trustees.

The effect of that is twofold: the actual disposal of the assets, which may be unfavourable to the pension scheme; and, even without any of that happening, the fact that such a possibility exists raises doubts about the numerous pledges that underpin contribution agreements. It is far from desirable to have to revisit them but, without any assurance, it would seem necessary for trustees to think about that and seek more cash funding. That would be bad at any time, but when companies are facing more difficult times due to the pandemic and its after-effects, it would be particularly unwelcome. That is the reasoning behind the amendment, and I know that other noble Lords are well able to illustrate the problem further.

Baroness Altmann Portrait Baroness Altmann [V]
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My Lords, I echo the words of the noble Baroness, Lady Bowles. I welcome the recognition by the Government in the amendments laid by the Minister of the importance of ensuring that a company pension scheme is not disadvantaged and that the Pensions Regulator and the Pension Protection Fund are given rights in circumstances where there is a moratorium or negotiations regarding saving the ongoing business.

As the noble Baroness said, Amendment 15 provides the sort of reassurance that not only a pension scheme and its trustees might need but that the entire defined benefit pension system might require should there be the sort of emergency problems that we are passing this legislation to cope with. The assets of a company are sometimes pledged to a pension scheme in order to reduce the amount of cash that the sponsor needs to pay into the scheme. The types of these so-called contingent assets that we are concerned about in this amendment are Type B(ii) and Type B(iii). Type B(ii) are rights over real estate owned by the company and Type B(iii) are securities that have been pledged to the pension scheme. The scheme’s funding will have been based on following significant negotiations over the years to fix funding shortfalls.

What has happened recently gives rise to enormous concern. In 2007, schemes in deficit had a total deficit of around £20 billion. By 2008, that had risen to £100 billion or more. In March 2009, it was £220 billion. At the end of last year, it had fallen to around £165 billion, but the latest figures from the Pension Protection Fund show that the total deficits of schemes in deficit have now reached £290 billion. There is a major shortfall across the defined benefit pension scheme universe. After many years of trustees agreeing with sponsors to allow deficit repair payments, I have significant concerns that these contingent assets could be at risk, given the amendments that have been laid. They give the Pension Protection Fund and the regulator the right to be notified and to participate in such negotiations, but if that will require court challenges rather than being ruled out without Pension Protection Fund permission, there is an ongoing risk that such assets could be approved for sale by the court. That would not only materially weaken the pension fund itself but, should the company then fail, the PPF will have many fewer assets than is currently assumed by its levy calculation. The system itself could then be at risk.

Scheme funding has been agreed over many years. In light of the other measures in this Bill, which could see bank lenders and even intracompany loans accelerate ahead of the pension scheme in an insolvency, there is likely to be a material weakening of DB scheme funding and potential recoveries on insolvency. Therefore, I am concerned that all other DB schemes and their members will be at risk and that the PPF lifeboat may not be secure in the way we currently believe that it is. I wonder whether the Minister might be able to confirm that the Pension Protection Fund will have the necessary powers to prevent the courts selling assets, should that be under consideration. Without that power, it may be too late once those assets have been sold. I agree with my noble friend that these measures improve the situation, but just allowing the PPF and the Pensions Regulator to have appropriate information, the same as other creditors, and the ability to challenge in court in certain circumstances leaves a question mark in one’s mind about how secure the contingent assets pledged to a pension scheme will be after this Bill, as it is currently worded, passes.

Lord Hain Portrait Lord Hain [V]
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My Lords, I was very happy to add my name to Amendment 15, which has been spoken to so eloquently and with unrivalled expertise and authority on this matter by the noble Baroness, Lady Altmann. I am very concerned about the threat to the Pension Protection Fund. I am proud to say that it started life under the last Labour Government in 2005, and I was subsequently Secretary of State for Work and Pensions. It is an important lifeboat, but it could be threatened if the consequences of insolvency, particularly with defined benefits, rebound into the PPF.

Although I welcome the concessions and responses that the Minister has made through these amendments, and what he has said as a result of the arguments put by the noble Baronesses, Lady Altmann and Lady Bowles, and others, including my noble friends Lady Drake and Lady Warwick, I still think there is a real risk involved. I hope that today, he will give greater recognition to that fact and that he and the Secretary of State will be vigilant in ensuring that the Government are fully cognisant of their concerns about the future viability of the vital Pension Protection Fund.

Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe [V]
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My Lords, I come to this from a slightly different point of view, and I rise to express some concern at the scale of amendments on pensions in this already finely balanced Bill. They may make life difficult for investors, creditors and the forces of enterprise that we need if our economy is ever going to recover from the dreadful coronavirus crisis. While understanding and accepting the government amendments and agreeing on the need for vigilance— in the words of the noble Lord, Lord Hain—I urge the Minister to go no further and not to accept Amendment 15. It gives too much power to the Pension Protection Fund and could have the perverse consequences of delay, burden and cost to pension funds and to businesses that are in trouble but have a sustainable future.

Lord Balfe Portrait Lord Balfe [V]
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My Lords, I am concerned at the way in which the Pension Protection Fund is currently heading. It has been burdened with more and more liabilities. This is a direct attack on it. We need to remember that the idea of pledged assets came as an alternative to companies having to put real cash into their pension fund deficits. The PPF was prepared to accept pledged assets on the basis that they were literally a pledge that could be redeemed against the deficit. If that is going to be removed, it will mean that any responsible trustee in any company in this country—whether the company has financial problems or not—must, as soon as this legislation comes into being, review those pledges. It does not matter whether the company has any financial problems. The pension trustees will have to say to the company, “Look, this is not worth the paper it is written on. I am sorry, but you have got to turn these pledges into financial support.” The Pension Protection Fund—if it is to do its job—will have to back those trustees, because this Bill is saying that the benefit of a pledge is worthless. That is the real problem. It is not about the handful of companies that will go under; it is about the large number of companies that will float, but with trustees who will have a duty to their pensioners to secure the pension no longer being able to place any trust in a pledged asset.

I urge the Minister to accept this. There is, anyway, a grave danger that the pensions’ lifeboat is going to sink. You cannot keep on putting the costs of failure on to an ever-decreasing number of schemes. The levy itself is in somewhat of a crisis. I hope that the Minister will step back and look not just at the individual company in trouble but at the impact on the pension scheme itself and on the position of any responsible trustee and of any pensioner who will be saying to their trustees, “If you are to fulfil your legal obligation to us to secure the pension, you must renounce these assets which have been pledged on the basis on which they have been pledged and turn them into real, hard, secure money”. If we do not accept this amendment, we are in grave danger of causing ourselves yet more problems. The law of unintended consequences will sweep through the trustee world. Certainly, if I am advising or taking part in any trustee meeting, I shall be saying to trustees, “Do not accept a pledged benefit”.

Baroness Drake Portrait Baroness Drake [V]
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My Lords, the Government have tabled a number of helpful amendments in this group to address concerns raised about the impact of this Bill on the position of pension schemes, PPF and the Pensions Regulator, including access to the table, the court and the deployment of creditor rights during any moratorium or subsequent restructuring process. I thank the Minister for that.

However, I remain concerned that a PPF assessment period and a pension scheme Section 75 debt are not triggered during a moratorium or a restructuring plan. In a company voluntary arrangement, they would have been triggered when the proposal was filed with the court. This means that the PPF access to the share of the vote, exercised on behalf of the pension scheme, relates to the scheme’s full debt, giving it greater influence. In a restructuring plan, the voting rights to be exercised by the PPF would be set by the court. The Bill makes no provision as to what these should be. Given that the scheme’s full debt will not have been triggered, the most likely outcome will be reduced voting rights, reflecting a much smaller allowance for the defining of the debt. This will unquestionably put the PPF as a scheme at a disadvantage compared with other creditors such as loan providers, where the full value of their debt will be recognised, or landlords who will likely have voting rights based on the valuation of their full contract.

The government amendments mean the PPF can argue the position in court. It can seek to have the full value of the employer’s debt to the scheme recognised. However, its voice will be more limited, and its chances of success diminished. Where the full value of that debt is not recognised, it will disadvantage the scheme in the court’s consideration of the equitable provision in approving a restructuring plan, and the not worse off than the alternative provision when considering a cross-class cram down. This weakening of the scheme—while strengthening finance debt holders, including parent and intra-group companies during the moratorium or restructuring plan—tilts that balance of interests to which the Minister referred against the scheme. It will inevitably lead to novel forms of moral hazard to avoid pension liabilities.

Interestingly, this Bill sits alongside the Pension Schemes Bill whose Report stage is imminent. That Bill introduces new sanctions which criminalise business activities and exposes third parties, such as banks and advisers, to sanctions where conduct prevents the recovery of the whole or part of any Section 75 debt or detrimentally affects the likelihood of scheme benefits being received. This opens up the possibility that what may be lawful action under the Corporate Insolvency and Governance Bill may invite criminal sanctions under the Pension Schemes Bill. There is a certain irony in giving a breathing space to businesses to assist in their survival, while weakening a creditor—the pensions scheme—which has a strong interest in the company surviving, as the noble Lord, Lord Callanan, acknowledged. Unlike other unsecured creditors, trustees will not be in a position to manage the exposure to the scheme’s debt by ceasing to deal with the employer. Their very interest is invested in the survival of that company and its business.

With reference to a comment made by the noble Lord, Lord Balfe, it is important to remind ourselves that, in private sector schemes, there are more than 10 million pensions in payment or due to be paid in the future. We have to balance the interests of a very sizeable group of people, as the Minister recognised. The Secretary of State has extensive powers under this Bill. Given the complex and uncertain impact of these provisions, will the Government continue to monitor closely and consult on the impact of the provisions embraced by these government amendments and commit to responding quickly where perverse behaviours become apparent?

Lord Blunkett Portrait Lord Blunkett (Lab) [V]
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My Lords, it had been my intention to speak on the final day of Committee but, because of an administrative blip, my name went in at entirely the wrong time.

I am pleased that the Government have been prepared to move on this area, as they have on other parts of this complex and detailed Bill. Like my noble friend Lord Hain, I was the Pensions Minister for a time, at the time when the Pension Protection Fund was being brought into full operation. It built on the incredible work—unsung and unknown to many people—of my good friend Andrew Smith, the previous Secretary of State for Work and Pensions. The noble Baroness, Lady Altmann, was a lobbyist at the time. I remember the withering nature of her commentary on what we were doing. I cannot ever remember the noble Baroness giving us credit for anything, but now she probably thinks that, 15 years ago, we were doing the right thing. This is why I take seriously what she has said in relation to contingent assets and their likely disposal.

Consequent to what my noble friend Lady Drake said about the Pension Schemes Bill, can the Minister say whether, with regard to the legislation that is being brought forward by the Government to protect our crucial national infrastructure from the sale of assets which would otherwise be detrimental to our economy and to the supply chain, which has arisen from the experience of the last four months, there can be an interrelationship between the different pieces of legislation? That is so that we can be clear not only about the rules that are being applied and the power that would exist for the Pension Protection Fund if this amendment is passed but about how we can ensure that one piece of legislation relates directly to and integrates with another piece of the Government’s policy. If we can get them to act together, some of the fears that have been raised can be allayed.

Lord Fox Portrait Lord Fox
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My Lords, I am grateful to all noble Lords who have spoken in this important debate. I am a signatory to Amendment 15 and I thank my noble friend Lady Bowles, the noble Baroness, Lady Altmann, and the noble Lord, Lord Hain, for co-signing it. I join other Peers in acknowledging that the Government have moved in terms of listening to the previous debate and going forward, but the issue that Amendment 15 seeks to address is a serious one. If this Bill went through without the sorts of assurances that we are looking for from the Minister, or remained unamended, that would create a huge issue for pension trustees all over the country. Never mind the ones that are going into insolvency—as the noble Lord, Lord Balfe, set out so eloquently, every single pension trustee would revisit every single pledged asset and would go back to the management of their sponsoring companies to ask for cash instead. I do not need to remind the Minister that cash flow is one of the biggest challenges facing businesses at the moment; it is actually cash that is the problem. To knowingly put in a measure that will drain profitable businesses of cash would be careless, and I do not think that that is what the Government are doing. I think this is an unknowing consequence of the Bill.

To be clear, this concerns assets that have already been pledged. When the Minister spoke earlier, he seemed to be referring to assets being pledged at the time of insolvency, but these are assets which have been pledged in lieu of cash. Given that, I am a little bemused by the idea put forward by the noble Baroness, Lady Neville-Rolfe, that the Pension Protection Fund would somehow be overreaching itself in seeking to protect these funds for pensioners and that it would be giving the PPF too much power. Rather, it is merely the power to protect assets that have been signed over to the pension fund. If they were not assets such as those set out by the noble Baroness, Lady Altmann—real estate and securities—then it would be money. I do not think that the noble Baroness, Lady Neville-Rolfe, is proposing that the courts should have the power to extract money from pension funds, so why should they not have the power to protect against judges extracting assets that have been put aside in lieu of money?

The noble Baroness, Lady Altmann, put a clear question to the Minister, one that I think is very apposite to this point. Does the PPF have the power to prevent judges extracting pledged assets from pension funds and putting them into the pool of assets for distribution to other creditors? If the Minister is able to stand up and say that clearly and unambiguously—for those Members watching remotely, it does not look like he is—there is no problem. However, if the Bill leaves this House unamended or without that pledge, this issue will become a very serious one not just for the pension funds of distressed companies but for every defined benefit pension fund in the country.

Lord Lennie Portrait Lord Lennie (Lab) [V]
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My Lords, straight off the bat, I too welcome the Government’s movement on this specific part of this necessary Bill. There will be a sense of relief for direct benefit pension funds and their trustees, the Pension Protection Fund and the regulator. As has been said, all will now have rights of access to information about the intentions of companies and to voice their opinions about the decisions that are being contemplated; a seat at the table, access to court and so forth. This will be true throughout the UK.

When a company seeks a moratorium or when it considers other actions in a potential redundancy and insolvency circumstance, the monitor will be required to notify the pension scheme, the PPF and the regulator to have due consideration of their views about the proposed action. In the event that a moratorium comes to an end or if the monitor changes, the pension scheme trustees and the PPF must be informed. This will mean in effect that the debts owing to a direct benefit pension scheme do not rank below other finance debts. That would recognise the real status of a pension as deferred earnings and should not allow others to accelerate the debt position at the expense of pension provision, as was feared in the original text. These changes have come about due to the strength of the arguments put by my noble friends Lady Drake and Lady Warwick, the noble Baroness, Lady Bowles, on the Liberal Democrat Benches, and the noble Lord, Lord Balfe, and the noble Baroness, Lady Altmann, on the Conservative side. I congratulate them on achieving this much.

However, can the Minister provide the reassurance being sought about the value of direct benefit schemes being put at risk by the sale of assets, and ultimately the whole working of the PPF? Will he closely monitor and consult on any necessary remedial actions that may arise from his examination of this issue? The Minister can take the credit due to him for his part in bringing forward these amendments to the Bill, and they are welcome. But can he confirm that the Government will stay alert and ready to intervene on behalf of pensions and the PPF in the event that the measures in this legislation do not go far enough in protecting them?

Lord Callanan Portrait Lord Callanan
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My Lords, I take this opportunity to thank everyone who has spoken in this important debate, and I am grateful for Amendment 15 because it is a very important provision. I am also grateful to noble Lords for their continuing efforts to ensure that pensions are treated appropriately through this Bill. None the less, I hope that they will agree that we are now seeking to introduce specific and satisfactory provisions to deal with pensions’ interests.

I also take this opportunity to assure noble Lords that where charged property is disposed of, it can be done only with the permission of the court and where the court believes that it is necessary to support the rescue. Where the court is satisfied and gives its permission, the net proceeds must go towards satisfying the amounts secured by the charge before they can be used in any other way. From a practical perspective, this amendment is not necessary. If a company in a moratorium was going to court to seek permission to dispose of charged assets, it would at the least have had to have had a conversation with the person to whom those assets are charged. Well before giving clearance to the company to dispose of such assets, the court will of course take account of their views at the hearing.

In response to my noble friend Lady Altmann and the noble Lord, Lord Hain, we have been in detailed discussions with colleagues in the DWP, along with both the Pensions Regulator and the Pension Protection Fund, in the formulation of these amendments. We are seeking to ensure that the PPF is able to play a role in a company’s rescue plan where it is appropriate for it to do so. Let me also provide the assurance that the noble Lord, Lord Lennie, was looking for. Of course, we will continue to monitor these arrangements to ensure that they act in the fairest possible way for all the different stakeholders in the process that I referred to earlier.

On that basis, I hope that I have been able to provide sufficient reassurance to noble Lords and that they will feel able to not move their amendments when the time comes. I beg to move.

Amendment 4 agreed.

Amendment 5

Moved by

5: Clause 1, page 5, line 43, leave out from beginning to end of line 2 on page 6

Member’s explanatory statement

This amendment removes a Henry VIII power to change a list of documents.

Amendment 5 agreed.

Amendments 6 and 7 not moved.

Amendment 8

Moved by

8: Clause 1, page 6, leave out lines 29 to 32

Member’s explanatory statement

This amendment removes a Henry VIII power to change a list of documents.

Amendment 8 agreed.

Amendments 9 and 10 not moved.

Amendments 11 and 12

Moved by

11: Clause 1, page 8, leave out lines 8 to 11

Member’s explanatory statement

This amendment removes a Henry VIII power to change a list of documents.

12: Clause 1, page 10, line 42, at end insert—

“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by section 126 of the Pensions Act 2004, the Board of the Pension Protection Fund.”Member’s explanatory statement

This amendment extends the monitor’s duties to give notice where a moratorium is extended or comes to an end.

Amendments 11 and 12 agreed.

Amendment 13 not moved.

Amendment 14

Moved by

14: Clause 1, page 13, line 48, at end insert—

“(f) banks and other financial creditors may not seek to accelerate payment.”

Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted [V]
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I thank noble Lords who signed the amendment and spoke in support. The noble Lords, Lord Hodgson and Lord Holmes, and my noble friend Lady Kramer all spoke from experience about how banks will behave to extract cash. The noble Lord, Lord Adonis, asked what grounds the Government had for thinking banks could be constrained. The noble Baronesses, Lady Drake and Lady Altmann, expressed concerns about gaming. The noble Lord, Lord Stevenson, admitted that the amendment was persuasive. There is consensus that the focus is people.

The Minister’s answer is simply that if the banks press for too much, the payment will not happen and the moratorium will end. That does not stop the accelerated payments and death by a thousand cuts. From the cash flows and other information they have about their clients, banks are well able to know how much they can take a company for and to pace their demands until the money is gone or they have pressurised the business into other lucrative financial arrangements. It is game on.

I am not convinced by the answer about financial stability; the Minister knows this is a subject I know very well. Contracts on market operations do not have to end; it is simply the acceleration of payment on lending that needs restriction. Every pound that is required over and above the general terms existing pre-moratorium is tantamount to reaching through and picking the pocket of employees, pension schemes and small businesses.

The scope given to banks and other lenders to press their advantage during moratorium is too great. It can remove the very breathing space that is the objective of the moratorium. I have not heard any expression of limit to reasonableness other than some kind of banking self-control caused by a moratorium end if the banks get too greedy. As my noble friend Lord Fox said, it is simply tiptoeing around the banks.

To save jobs and businesses and protect pensions, banks must be far more equally in the moratorium. No amount of employee consultation can blunt the banks, and I wish to test the opinion of the House.

Sitting suspended.

Amendment 15

Moved by

15: Clause 1, page 19, line 7, at end insert—

“( ) However, the court may not give permission for the disposal of any property or asset under subsection (1) which has been pledged to the company’s defined benefit pension scheme unless the Pension Protection Fund has given prior permission for its disposal.”

Lord Fox Portrait Lord Fox
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My Lords, we heard what the Minister had to say, and I and others have already spoken at length on this amendment. The principle is that a deal is a deal: the pensioners were granted those assets and the idea that that can retrospectively be prised from the deferred salaries and wages of workers is such that I do not think the Bill should leave this House without it being tested. I therefore wish to test the will of the House.

Amendments 16 and 17 not moved.

Amendments 18 to 23

Moved by

18: Clause 1, page 22, line 35, at end insert—

“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by section 126 of the Pensions Act 2004, the Board of the Pension Protection Fund.”Member’s explanatory statement

This amendment extends the duty to give notice that the monitor has changed.

19: Clause 1, page 24, line 39, at end insert—

“A44A Challenge brought by Board of the Pension Protection Fund(1) This section applies where—(a) a moratorium—(i) is in force in relation to a company that is an employer in respect of an eligible scheme, or(ii) is or has been in force in relation to a company that has been an employer in respect of an eligible scheme at any time during the moratorium, and(b) the trustees or managers of the scheme are a creditor of the company.(2) The Board of the Pension Protection Fund may make any application under section A42(1) or A44(1) that could be made by the trustees or managers as a creditor.(3) For the purposes of such an application, any reference in section A42(1) or A44(1) to the interests of the applicant is to be read as a reference to the interests of the trustees or managers as a creditor.(4) In this section “eligible scheme” has the meaning given by section 126 of the Pensions Act 2004.”Member’s explanatory statement

This amendment gives the Board of the Pension Protection Fund the same rights to challenge the monitor or the directors as the trustees or managers of certain pensions schemes have.

20: Clause 1, page 30, line 18, at end insert—

“A49A Power to make provision in connection with pension schemes (1) The Secretary of State may by regulations provide that, in a case where—(a) a moratorium—(i) is in force in relation to a company that is an employer in respect of an eligible scheme, or(ii) is or has been in force in relation to a company that has been an employer in respect of an eligible scheme at any time during the moratorium, and(b) the trustees or managers of the scheme are a creditor of the company,the Board of the Pension Protection Fund may exercise any of the following rights.(2) The rights are those which are exercisable by the trustees or managers as a creditor of the company under or by virtue of—(a) section A12, or(b) a court order under section A44(4)(c).(3) Regulations under subsection (1) may provide that the Board may exercise any such rights—(a) to the exclusion of the trustees or managers of the scheme, or(b) in addition to the exercise of those rights by the trustees or managers of the scheme.(4) Regulations under subsection (1)—(a) may specify conditions that must be met before the Board may exercise any such rights;(b) may provide for any such rights to be exercisable by the Board for a specified period;(c) may make provision in connection with any such rights ceasing to be so exercisable at the end of such a period.(5) Regulations under subsection (1) are subject to the affirmative resolution procedure.(6) In this section “eligible scheme” has the meaning given by section 126 of the Pensions Act 2004.”Member’s explanatory statement

This amendment enables the Board of the Pension Protection Fund to be given the power to exercise certain rights of the trustees or managers of a pension scheme.

21: Clause 1, page 31, line 44, at end insert—

““employer”, in relation to a pension scheme—(a) in sections A8(2)(c), A17(8)(c) and A39(8)(c), means an employer within the meaning of section 318(1) of the Pensions Act 2004;(b) elsewhere in this Part, has the same meaning that it has for the purposes of Part 2 of the Pensions Act 2004 (see section 318(1) and (4) of that Act);”Member’s explanatory statement

This amendment defines “employer” for the purposes of the Minister’s other amendments to clause 1 which use that term.

22: Clause 1, page 32, line 5, at end insert—

““money purchase scheme” has the meaning given by section 181(1) of the Pension Schemes Act 1993;”Member’s explanatory statement

This amendment defines “money purchase scheme” for the purposes of the Minister’s other amendments to clause 1 which use that term.

23: Clause 1, page 32, line 11, at end insert—

““occupational pension scheme” has the meaning given by section 1 of the Pension Schemes Act 1993;“pension scheme” has the meaning given by section 1 of the Pension Schemes Act 1993;” Member’s explanatory statement

This amendment defines “occupational pension scheme” and “pension scheme” for the purposes of the Minister’s other amendments to clause 1 which use those terms.

Amendments 18 to 23 agreed.

Clause 4: Moratoriums in Northern Ireland

Amendments 24 to 36

Moved by

24: Clause 4, page 35, line 33, leave out “changing the definition of “the relevant documents”” and insert “adding to the list of documents”

Member’s explanatory statement

This amendment narrows the power to change a list of documents, so that it is confined to adding to the list. The power could subsequently be re-exercised so as to remove anything added.

25: Clause 4, page 36, line 12, at end insert—

“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005, the Board of the Pension Protection Fund.”Member’s explanatory statement

This amendment extends the monitor’s duty to give notice that a moratorium has come into force.

26: Clause 4, page 37, leave out lines 34 to 38

Member’s explanatory statement

This amendment removes a Henry VIII power to change a list of documents.

27: Clause 4, page 38, leave out lines 20 to 24

Member’s explanatory statement

This amendment removes a Henry VIII power to change a list of documents.

28: Clause 4, page 40, leave out lines 4 to 8

Member’s explanatory statement

This amendment removes a Henry VIII power to change a list of documents.

29: Clause 4, page 42, line 42, at end insert—

“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005, the Board of the Pension Protection Fund.”Member’s explanatory statement

This amendment extends the monitor’s duties to give notice where a moratorium is extended or comes to an end.

30: Clause 4, page 54, line 25, at end insert—

“(c) in a case where the company is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, the Pensions Regulator, and(d) in a case where the company is an employer in respect of such a pension scheme that is an eligible scheme within the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005, the Board of the Pension Protection Fund.” Member’s explanatory statement

This amendment extends the duty to give notice that the monitor has changed.

31: Clause 4, page 56, line 31, at end insert—

“13FC Challenge brought by Board of the Pension Protection Fund(1) This Article applies where—(a) a moratorium—(i) is in force in relation to a company that is an employer in respect of an eligible scheme, or(ii) is or has been in force in relation to a company that has been an employer in respect of an eligible scheme at any time during the moratorium, and(b) the trustees or managers of the scheme are a creditor of the company.(2) The Board of the Pension Protection Fund may make any application under Article 13F(1) or 13FB(1) that could be made by the trustees or managers as a creditor.(3) For the purposes of such an application, any reference in Article 13F(1) or 13FB(1) to the interests of the applicant is to be read as a reference to the interests of the trustees or managers as a creditor.(4) In this Article “eligible scheme” has the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005.”Member’s explanatory statement

This amendment gives the Board of the Pension Protection Fund the same rights to challenge the monitor or the directors as the trustees or managers of certain pension schemes have.

32: Clause 4, page 61, line 6, leave out from “Assembly” to end of line 10

Member’s explanatory statement

This amendment removes the temporary modification to the parliamentary procedure for regulations. See also the proposed new clause in the Minister’s name to be inserted after Clause 43.

33: Clause 4, page 61, line 10, at end insert—

“13HAA Power to make provision in connection with pension schemes(1) A Northern Ireland department may by regulations provide that, in a case where—(a) a moratorium—(i) is in force in relation to a company that is an employer in respect of an eligible scheme, or(ii) is or has been in force in relation to a company that has been an employer in respect of an eligible scheme at any time during the moratorium, and(b) the trustees or managers of the scheme are a creditor of the company,the Board of the Pension Protection Fund may exercise any of the following rights.(2) The rights are those which are exercisable by the trustees or managers as a creditor of the company under or by virtue of—(a) Article 13CC, or(b) a court order under Article 13FB(4)(c).(3) Regulations under paragraph (1) may provide that the Board may exercise any such rights—(a) to the exclusion of the trustees or managers of the scheme, or(b) in addition to the exercise of those rights by the trustees or managers of the scheme.(4) Regulations under paragraph (1)— (a) may specify conditions that must be met before the Board may exercise any such rights;(b) may provide for any such rights to be exercisable by the Board for a specified period;(c) may make provision in connection with any such rights ceasing to be so exercisable at the end of such a period.(5) Regulations may not be made under paragraph (1) unless a draft of the regulations has been laid before, and approved by a resolution of, the Assembly.(6) In this Article “eligible scheme” has the meaning given by Article 110 of the Pensions (Northern Ireland) Order 2005.”Member’s explanatory statement

This amendment enables the Board of the Pension Protection Fund to be given the power to exercise certain rights of the trustees or managers of a pension scheme.

34: Clause 4, page 62, line 36, at end insert —

““employer”, in relation to a pension scheme—(a) in Articles 13BE(2)(c), 13CH(8)(c) and 13EE(8)(c), means an employer within the meaning of Article 2(2) of the Pensions (Northern Ireland) Order 2005;(b) elsewhere in this Part, has the same meaning that it has for the purposes of Part 3 of the Pensions (Northern Ireland) Order 2005 (see Article 2(2) and (5) of that Order);”Member’s explanatory statement

This amendment defines “employer” for the purposes of the Minister’s other amendments to Clause 4 which use that term.

35: Clause 4, page 62, line 38, at end insert —

““money purchase scheme” has the meaning given by section 176(1) of the Pension Schemes (Northern Ireland) Act 1993;”Member’s explanatory statement

This amendment defines “money purchase scheme” for the purposes of the Minister’s other amendments to Clause 4 which use that term.

36: Clause 4, page 62, line 44, at end insert—

““occupational pension scheme” has the meaning given by section 1 of the Pension Schemes (Northern Ireland) Act 1993;“pension scheme” has the meaning given by section 1 of the Pension Schemes (Northern Ireland) Act 1993;”Member’s explanatory statement

This amendment defines “occupational pension scheme” and “pension scheme” for the purposes of the Minister’s other amendments to Clause 4 which use those terms.

Amendments 24 to 36 agreed.

Amendment 37

Moved by

37: After Clause 7, insert the following new Clause—

“Administration in Great Britain: revival of power about sales to connected persons

(1) Paragraph 60A of Schedule B1 to the Insolvency Act 1986 (which expired in May 2020) is revived.(2) For sub-paragraph (10) of that paragraph substitute—“(10) This paragraph expires at the end of June 2021 unless the power conferred by it is exercised before then.””Member’s explanatory statement

This amendment revives paragraph 60A of Schedule B1 to the Insolvency Act 1986, which expired in May 2020 by virtue of the sunset provision in sub-paragraph (10) of that paragraph.

Lord McNicol of West Kilbride Portrait The Deputy Speaker (Lord McNicol of West Kilbride) (Lab)
- Hansard - - - Excerpts

I remind noble Lords that Members other than the mover of an amendment and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or any other amendment in the group to a Division should make that clear in the debate.

Lord Callanan Portrait Lord Callanan
- Hansard - - - Excerpts

My Lords, the Government have listened carefully to the concerns raised by noble Lords in Committee and elsewhere.

Where used appropriately, pre-pack sales can perform a useful rescue function. In some instances, sales to connected parties are beneficial. However, we accept that the nature of the transaction and the speed with which it is carried out might also provide some opportunities for mischief. This could particularly be the case during the current crisis. The Government acknowledge that there may be a risk of an increase in the use of pre-pack sales, which could adversely affect businesses already struggling as a result of Covid-19.

The Government therefore propose amendments to revive the power, which expired in May 2020, to regulate sales in administration to connected parties, and to introduce a similar power in Northern Ireland. These government amendments will revive paragraph 60A in Schedule B1 to the Insolvency Act 1986. This will enable the Secretary of State to make regulations to prohibit or impose requirements or conditions in relation to the sale of property of a company by the administrator to a connected person, in circumstances specified in the regulations. This power will expire at the end of June 2021, unless it is previously exercised.

The amendments will also insert a new power in Schedule B1 to the Insolvency (Northern Ireland) Order 1989 to enable similar regulation of sales to a connected person in Northern Ireland. This power will also be time limited until the end of June 2021, unless previously exercised. Regulations made under the power in Northern Ireland must be laid in draft and approved by a resolution of the Northern Ireland Assembly. And we are going further: ahead of using the power, we will publish the Government’s review of existing voluntary measures in respect of pre-pack sales this summer to help further inform the public debate on this issue. I beg to move.

Lord Hodgson of Astley Abbotts Portrait Lord Hodgson of Astley Abbotts
- Hansard - - - Excerpts

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.

Some 15 or more years ago, a cross-party group in your Lordships’ House began to urge the Government—it was a Labour Government then, then the coalition Government and the Conservative Government now—that this was not a good way to proceed, that there were more ways to check this out and that more analysis was needed. To their credit, the coalition Government accepted the point and Vince Cable set in train a review with Teresa Graham, who, six years ago in 2014, came up with a report that recommended some changes. In particular, it recommended the establishment of what was called the pre-pack pool to bring a measure of regulation to pre-packs.

The pre-pack pool is a group of businessmen who can be approached by groups thinking of undertaking a pre-pack to ask its professional opinion of their proposal. It has three options: it can say that the proposal is reasonable, reasonable if changes are made, or unreasonable. Unusually, and not entirely satisfactorily, the pre-pack pool is a stand-alone limited company self-funded by a levy on those who ask for its opinions. The levy is currently £800 plus VAT, or £960 a pop. However, the Achilles heel from the beginning was that references were entirely optional. Who would want to spend 960 quid when they do not have to? The more ruthless, hard-nosed and one-sided your proposed pre-pack, the less you will want to seek the pool’s opinion. The outcome therefore has been entirely predictable: the pool is on the verge of collapse. It has had only 10 referrals this year, according to the Times.

Some time ago, the Government recognised the instability of this position and took action in the Small Business, Enterprise and Employment Act 2015 to take powers to improve the regulation of pre-packs. We all say amen to that. It was only a power and it had a sunset clause. As my noble friend said, it was never exercised and unhelpfully expired on 20 May, four and a half weeks ago.

The Government are now reviving these powers in Amendments 37 and 38. As I said, I support them wholeheartedly. However, the Government do not need powers. They had powers for five years and did absolutely nothing. We need action. We need something to happen to deal with the problems of pre-packs, particularly in the fast-moving and difficult situation that will happen as the economy starts to emerge from the pandemic. A wave of pre-packs can be expected. Some say that it is already happening—some good, some less good and some downright unfair or wrong. Over the next few months, these will be seen in all their glory. If the pre-pack pool collapses, the last vestige of regulation of what can be the wild west of the insolvency world will be gone.

My Amendment 45, which I will not read out, would make obtaining a reference from the pool compulsory. If I were the Government, I should grab this, because there will be some horrid cases. If the pre-pack pool is still in existence, they can say, “Nothing to do with me, guv. Go and talk to the pre-pack pool—it authorised it.” As it is, without the pre-pack pool, it will land on the Minister’s desk and he will have some explaining to do.

If, in due time, the Minister’s department can use its powers to bring forward improvements to the situation, no one will be more pleased than me. I do not suggest that the pre-pack pool and the present structure is entirely right but, in the interim, we need the pool to provide an element of regulation to avoid the most egregious examples of misbehaviour. I urge my noble friend the Minister, even at this late stage, to accept Amendment 45. If he cannot, I and a number of other Members of your Lordships’ House regard this as so important for the proper integrity of the operation of British business that I reserve the right to test the opinion of the House in due course.

Lord Vaux of Harrowden Portrait Lord Vaux of Harrowden (CB) [V]
- Hansard - - - Excerpts

My Lords, I support Amendment 45, in the name of the noble Lord, Lord Hodgson. In Committee, I tabled a similar amendment but am happy to support his more robust version. I remind the House of my interests as a chartered accountant.

It is good to see that the Government have tabled Amendments 37 and 38, which would reinstate for another 15 months the power that the Government already had to improve the regulation of connected party pre-packs but which they allowed to lapse, possibly unintentionally. That amendment is most welcome but it does not address the urgency of the situation: the fact that we are facing a substantial rise in insolvencies very soon. The noble Lord, Lord Hodgson, memorably described it in Committee as a storm that is bound to come.

It is inevitable that we will see many more pre-packs to related parties in the coming months. Another high-profile potential related-party pre-pack is being talked about just today: Go Outdoors, which is owned by JD Sports. As we have heard, many may well be entirely appropriate and even a good thing, However, they lack transparency and we are likely to see many others, such as the Quiz transaction, which the noble Lord, Lord Mendelsohn, so graphically described in Committee, which are nothing less than a rip-off of creditors. We need something to deal with the immediate risk, not just a power to take action which might or might not be used for another year, or even at all.

I confess that I struggle to understand why the Government find it so difficult to accept this amendment, which would introduce at least some independent review and transparency into this murky area of insolvency practice. The main argument put forward by the Minister is that the insolvency profession is highly regulated with strong professional standards, and that we can rely on it to ensure that all transactions are appropriate. But that is self-evidently not the case: there are so many past examples of inappropriate pre-packs that it is clear that we cannot just rely on the industry to police itself. Conflicts of interest are legion. The noble Lord, Lord Hodgson, explained in Committee and has repeated today how insolvency practitioners can, and do, tick the boxes by spurious marketing of the business, thereby covering the administrators’ derrière—what used to be known in my accountancy days as CYA.

The Minister explicitly recognised the concerns about connected party pre-packs at Second Reading and has done so again today, which is very welcome. He has also argued that making referral mandatory would be an additional burden on business at a difficult time. But the pre-pack pool aims to give an opinion with just half a day’s work and at a cost of just £800 to the connected party—not really a significant burden. He also asked in Committee whether it is right to restrict the required opinion to one source of supply, but that is rather like the old joke: why is there only one monopolies commission?

Why are the Government finding it so difficult to accept this amendment? Perhaps they do not believe that the pre-pack pool is the right answer. Did the Minister disagree with Teresa Graham, who produced the report for the Government that led to the creation of the pool, when she said recently:

“To see the demise of the pre-pack pool would be utter folly”?

The letter that the Minister sent to the pool, and his answers to questions in Committee, were certainly less than fulsome in their support. If that is the case, there is an easy answer for him. The immediate solution is, first, to make referral to the pre-pack pool mandatory now, as this amendment suggests. With one short amendment, at a stroke we will have instantly made independent review compulsory, improved transparency and reduced the risk to the moratorium as well. There would be no new bodies or processes; it would have minimal cost and bureaucracy. It would not in any way inhibit those situations where the proposed pre-pack is appropriate.

Subsequently, if the Government still do not believe that the pre-pack pool is the right long-term solution, they have the power to propose something better at any time within the next 15 months under their Amendment 37. We have the best of both worlds: an instant, simple solution and the luxury of time to create something better. I urge the Minister to accept Amendment 45. If he does not, then I hope that the noble Lord, Lord Hodgson, will test the opinion of the House. We have a clear duty to prevent creditors being ripped off in this coming storm.

Baroness Altmann Portrait Baroness Altmann [V]
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My Lords, I will be brief. I very much support the wise words of my noble friend Lord Hodgson of Astley Abbotts and the noble Lord, Lord Vaux. I welcome Amendments 37 and 38, and I cannot quite understand the reluctance of the Government to agree to this amendment; I know that there has been significant discussion on it.

Clearly, any pre-pack can have positive effects, but the transparency and oversight issues, particularly in the current emergency environment, surely require some modicum of independent oversight. We have the pool ready to go and are in a position where we could anticipate problems, rather than trying to deal with them after they have arisen, when it is too late for the small creditors that could be so damaged by the egregious practices that we in this House have all heard about, and many noble Lords have previously explained.

I hope that my noble friend can give sufficient reassurances to the House on this issue. However, I will support Amendment 45, should that not be possible.

Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe [V]
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My Lords, I thank the Minister very warmly for accepting the amendment on pre-packs that I put down in Committee, on which I had the help of the British Property Federation. The amendment was designed to restore the power in the Small Business, Enterprise and Employment Act. Amendments 37 and 38 have been drafted by parliamentary counsel and use a much more elegant formula to amend the original Insolvency Act, but to the same effect and with the same deadline of June 2021. I would like an assurance from my noble friend the Minister that that power will be used and that it will be able to deal with some of the pre-pack issues.

I would like to thank my noble friend Lord Hodgson, who has demonstrated his admirable virtuosity—he is not merely an expert on pubs and demography, as the House knows, but on insolvency, as well as many other things. I also support the thrust of his amendment. I should add that, without his oratory and argument last week, we would not have made the progress that we have.

Lord Palmer of Childs Hill Portrait Lord Palmer of Childs Hill [V]
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My Lords, I support wholeheartedly the amendment from the noble Lord, Lord Hodgson. It seems sensible, and I hope that the Government will accept it. Having heard a previous speaker do so, I must declare my interest as a chartered accountant.

Many speakers in today’s debate have drawn a difference between selling or transferring a business and selling a company. The idea of a pool was meant to be a sort of bridge between the two, so that the business can survive—but there is of course a danger that it can be taken advantage of. When Vince Cable set out this principle, on the advice of Teresa Graham, it was to set up a pool. It might perhaps be useful to read into the debate the members of the oversight group, which comprises representatives of the founding parties of the pool: R3, the Association of Business Recovery Professionals; the Association of Chartered Certified Accountants; the British Property Federation; the British Printing Industries Federation; the Chartered Accountants Regulatory Board; the Chartered Institute of Credit Management; and the Institute of Chartered Accountants. It is a long, long list.

To ask that one member of the pre-pack pool should say that the transaction is not unreasonable seems a sensible move to deal with what we believe will be a tsunami of liquidations and business problems, and it shows another way of skinning the cat rather than just using a monitor or going straight into liquidation. So I heartily support the amendment in the name of the noble Lord, Lord Hodgson.

Lord Fox Portrait Lord Fox
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My Lords, very briefly, it seems that the solution of the noble Lord, Lord Hodgson, is very elegant, and, like the noble Lord, Lord Vaux, I am struggling to find out why the Government might not accept it. One of the things that has come up on a number of occasions is the need for speed for both the Bill and decision-making: “We do not have time to talk to the workers”; “We do not have time to do this.” This is an opportunity to take one moment out and review whether this move—a pre-pack—is in the best interests of all concerned. I cannot see why the Government would not support it, and I expect that the Minister will stand up and wholeheartedly embrace Amendment 45 shortly.

Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted [V]
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My Lords, I supported the pre-pack amendments in Committee and have done so again. The reason for the amendment in the name of the noble Lord, Lord Hodgson, is simple: reference to the pool is not happening, and bad pre-packs are. Like others, I do not consider all pre-packs to be bad, but it is unquestionable that some bad deals are going on.

The Government are reinstating a provision to give themselves powers that have recently lapsed. I do not wish to prevent that but, as the noble Lord, Lord Hodgson, said, that power has already lain for too long—for five years—without regulations being forthcoming. Due to coronavirus, more deals and insolvencies are likely, and there will be horrid cases, as the noble Lord, Lord Hodgson, said. The noble Lord, Lord Vaux, also reminded us again of the storm that is about to come—or the “tsunami”, as my noble friend Lord Palmer said. Every day we already hear of more, and some are a rip-off of creditors, as the noble Lord, Lord Mendelsohn, said in Committee and as the noble Lord, Lord Vaux, reminded us. The evidence is that insolvency practitioners can easily tick boxes to cover themselves. It is happening.

This amendment is simple and complete: use the panel that has been set up. In Committee the Minister was critical of the fact that the panel is set up in a light-touch way rather than having a regulatory power, but it is like that because government wanted it that way. If the Government want to come forward with powers for ARGA to take over the job—and to make ARGA happy—I will be there in support. But that is not here now, and nor are other regulations. So let us not hurt the public still further by having the recovery from Covid littered with scandals of cosy and inappropriate pre-packs. This is another feature of how the unfairness built into the moratorium will work, with pressure for restructuring, where the big winners will be the financiers. The least we can do is to have some assurance that the deal meets the standard of reasonableness.

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara [V]
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My Lords, my name is on Amendment 46, as I strongly support the noble Baroness, Lady Neville-Rolfe, in her attempt to revive the powers taken in the small business Act 2015. We supported her in 2015 and pressed then for action to be taken against the abuses which were occurring in the pre-pack cases that came to light at the time.

However, as the noble Baroness said, thanks mainly to the rhetoric of the noble Lord, Lord Hodgson, and my noble friend Lord Mendelsohn, the Government have done a U-turn. Therefore, purely on consistency grounds, it is logical and right that we should support Amendments 37 and 38 in the name of the noble Lord, Lord Callanan. When he responds, I hope that he will confirm that he intends to use these powers and to act urgently.

I have been in discussion during the past couple of weeks with the noble Lord, Lord Hodgson of Astley Abbotts, about his Amendment 45. In the absence of government Amendments 37 and 38, I would have backed his proposal. However, I have an old-fashioned view about statutory powers being operated by non-statutory bodies such as the pre-pack pool. Given that the powers sought by Amendment 45 are contained within those to be taken under Amendments 37 and 38 and that, as the noble Lord, Lord Hodgson, admitted, there are some problems with the existing arrangements —the noble Lord, Lord Vaux, called them “murky” and denigrated the standards being achieved—I am minded to support the Government on this issue.

Lord Callanan Portrait Lord Callanan
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I thank my noble friends Lord Hodgson, Lady Altmann and Lady Neville-Rolfe, as well as the noble Lords, Lord Vaux and Lord Stevenson, and the noble Baroness, Lady Bowles, for their amendments, which would regulate pre-pack sales in administration.

It goes without saying that pre-pack sales have been a contentious subject during debates on this Bill in both Houses and, as some Members have indicated, on previous Bills. There was an impassioned debate about pre-packs in Committee, and I am grateful for the helpful contributions made during that debate by many of the aforementioned noble Lords, as well as the noble Lord, Lord Mendelsohn. I have certainly benefited from speaking to many of them in separate meetings with officials in trying to plot a route forward on this issue.

During that debate, I briefly explained some of the reasons why I did not think that Amendment 45, now brought back on Report, would be suitable. These included that the need for a positive opinion from a member of the pre-pack pool might create a potential conflict with the statutory objective of the administrator, which is to achieve a better result for creditors as a whole than if the company were wound up. There would also be a problem in that the amendment would prevent a sale without an opinion from the pre-pack pool even where the creditors had agreed that it should go ahead.

Moreover, whether a sale went ahead would be entirely dependent on a member of the pool assessing that it was not “unreasonable”, but the amendment provides no guidance on what “unreasonable” means in this context. This is likely to create significant uncertainty for businesses as to what is allowed and, of course, a significant risk of legal challenge.

Amendment 45 would capture only pre-pack transactions that had been negotiated with an associate before a company entered administration. The definition of “connected person” in paragraph 60A of Schedule B1 is drawn more widely than the definition of “associate” in Amendment 45, so the scope of the government amendment is in this case broader.

I also mentioned in Committee that there could be a difficulty in restricting supply of opinion to the pre-pack pool. I know that my noble friend Lord Hodgson expressed scepticism about my reasoning, but it is a proper concern that this could raise issues regarding anti-competitiveness.

My noble friend also suggested that pension liability could be removed. I point out to him that the Pension Protection Fund has confirmed that it does not generally see any evidence that pre-pack sales are being used to abandon pensions liabilities. Further, it considers that the Pensions Regulator has sufficient anti-avoidance powers to act as a deterrent against the misuse of pre-pack sales for the purposes of dumping a pension scheme.

I can say in response to a number of noble Lords who asked me questions—for instance, my noble friend Lady Neville-Rolfe, the noble Baroness, Lady Bowles, and the noble Lord, Lord Stevenson—that, if the government amendment is passed, we will publish in the summer a review of the existing voluntary measures to reform pre-pack sales and will set out in that report proposals for when and how we will regulate.

The amendment in the names of my noble friend Lady Neville-Rolfe and the noble Lord, Lord Stevenson, took a different approach—it would partially resurrect a previously lapsed power to regulate sales to connected persons in administration. The amendment does not quite go far enough to be workable but, as I set out earlier, we now have government amendments in that space, which I hope will work well; we have decided to table our own amendments to regulate pre-pack sales.

Having said that, and with the reassurances that I have given to the House, I hope that noble Lords will accept the assurances and information that I have been able to provide and will therefore not move their amendments when the time comes.

Amendment 37 agreed.

Amendment 38

Moved by

38: After Clause 7, insert the following new Clause—

“Administration in Northern Ireland: power about sales to connected persons

(1) The Insolvency (Northern Ireland) Order 1989 (S.I. 1989/ 2405 (N.I. 19)) is amended as follows.(2) Schedule B1 (administration) is amended in accordance with subsections (3) to (5).(3) Paragraph 61 (powers of administrator) becomes sub-paragraph (1) of that paragraph.(4) After that sub-paragraph insert—“(2) But the power to sell, hire out or otherwise dispose of property is subject to any regulations that may be made under paragraph 61A.”(5) After paragraph 61 insert—“61 Regulations may make provision for—(a) prohibiting, or(b) imposing requirements or conditions in relation to,the disposal, hiring out or sale of property of a company by the administrator to a connected person in circumstances specified in the regulations.(2) Regulations under this paragraph may in particular require the approval of, or provide for the imposition of requirements or conditions by—(a) creditors of the company,(b) the High Court, or(c) a person of a description specified in the regulations.(3) In sub-paragraph (1), “connected person”, in relation to a company, means—(a) a relevant person in relation to the company, or(b) a company connected with the company.(4) For the purposes of sub-paragraph (3)—(a) “relevant person”, in relation to a company, means—(i) a director or other officer, or shadow director, of the company;(ii) a non-employee associate of such a person;(iii) a non-employee associate of the company;(b) a company is connected with another if any relevant person of one is or has been a relevant person of the other.(5) In sub-paragraph (4), “non-employee associate” of a person means a person who is an associate of that person otherwise than by virtue of employing or being employed by that person.(6) Paragraph (11) of Article 4 (extended definition of company) applies for the purposes of sub-paragraphs (3) to (5) as it applies for the purposes of that Article.(7) Regulations under this paragraph may make incidental, consequential, supplemental and transitional provision. (8) Regulations may not be made under this paragraph unless a draft of the regulations has been laid before, and approved by a resolution of, the Assembly.(9) This paragraph expires at the end of June 2021 unless the power conferred by it is exercised before then.”(6) In Article 2(2), in the definition of “regulations”, after the words “and paragraph 16 of Schedule A1”(which are repealed by paragraph 3(b) of Schedule 7 to this Act) insert “and paragraph 61A of Schedule B1”.”Member’s explanatory statement

This amendment confers a power to make provision under the law of Northern Ireland about sales to connected persons in the context of an administration. It is similar to the corresponding power in Great Britain (which is revived by one of the Minister’s other amendments).

Amendment 38 agreed.

Lord McNicol of West Kilbride Portrait The Deputy Speaker
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I remind noble Lords that Members other than the mover of the amendment and the Minister may speak only once. Anyone wishing to press this or any other amendment in the group to a Division should make that clear in the debate.

Clause 10: Suspension of liability for wrongful trading: Great Britain

Amendment 39

Moved by

39: Clause 10, page 64, line 17, leave out from “30” to end of line 18 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of Clause 10 so that the period ends with 30 September 2020.

Baroness Bloomfield of Hinton Waldrist Portrait Baroness Bloomfield of Hinton Waldrist (Con)
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My Lords, I turn to the amendments in this group tabled by the Government, which extend the temporary insolvency measures in the Bill. Each of these measures delivers relief to those companies affected by the economic impact of Covid-19. The protections for companies from winding-up petitions and statutory demands will help struggling businesses by temporarily removing the threat of winding-up proceedings. The suspension of wrongful trading enables directors to make decisions about whether to carry on trading without the threat of personal liability. Modifications to the new moratorium will extend their benefits to companies that may otherwise not have been sure of accessing this procedure, and the small supplier carve-out from the termination clause provisions will help support small business suppliers.

We have listened to the concerns raised in the House regarding the expiry of the temporary insolvency measures and whether they should be extended. We agree that the period of uncertainty caused by the coronavirus will not have ended by the time these measures are currently due to expire. Therefore, an extension to 30 September 2020 will ensure that the measures continue to provide support to those companies impacted by the current pandemic. For this reason, I commend the government amendments in this group to the House. I beg to move.

Lord Bates Portrait The Deputy Speaker (Lord Bates) (Con)
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I call the noble Baroness, Lady Taylor. No? Then I call the noble Lord, Lord Pannick.

Lord Pannick Portrait Lord Pannick (CB) [V]
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My Lords, I am speaking to Amendments 103 and 106, which are in my name and in the names of three other members of your Lordships’ Constitution Committee: our esteemed chairman—the noble Baroness, Lady Taylor of Bolton—the noble Baroness, Lady Fookes, and the noble and learned Lord, Lord Wallace of Tankerness.

These amendments address aspects of the retrospective nature of provisions in the Bill. Paragraph 7 of Schedule 10 and paragraph 7 of Schedule 11 will render void a relevant winding-up order which was made by a court on or after 27 April this year but before the day on which the schedules come into force.

In our report on this Bill, HL76, published on 12 June, your Lordships’ Constitution Committee reminded the House:

“Retrospective legislation is generally regarded as inconsistent with the rule of law.”

It is constitutionally suspect, and it should normally be avoided. That is not least because retrospective legislation breaches the principle that, as at the date of the person’s action, he or she should know what the law demands and what it allows. It is not, in general, an answer to this constitutional vice that the Government have announced an intention to change the law retrospectively. Parliament changes the law, not Ministers, although they sometimes fail to recognise the distinction. Individuals are entitled to act on the law as it is, not as the Government propose that it will be, not least because in a constitutional democracy Ministers do not always get their way. Parliament may decline to act on Ministers’ proposals or, as often occurs, Ministers change their minds or officials advise them that they have changed their minds when they hear why their proposals are unfair or unwise.

However, like most constitutional rules, the rule against retrospectivity can be subject to exceptions, but an exception must be based on a compelling justification. Does the Minister accept that? That is my first question to her. Secondly, does the Minister accept that the justification needs to be especially compelling where, as here, the legislation will render void a court judgment obtained by a person in accordance with the law applicable as at the date of that judgment? Thirdly, does she accept that a policy announcement having been made by the Government that they are proposing retrospective legislation is not, of itself, a compelling justification for such legislation? Fourthly, does the Minister accept that a compelling justification for retrospective legislation can be provided only where there are no other means to secure a significant and legitimate objective? Those are my questions to the Minister.

When we considered this Bill, the Constitution Committee had seen no justification from the Government for the retrospective provisions. We therefore advised in our report that Ministers should set out the justification. Last Friday, 19 June, the Minister, the noble Lord, Lord Callanan, wrote to our chairman, the noble Baroness, Lady Taylor, responding to our report and including a response to our concerns about retrospectivity. Such is the speed with which the Bill is progressing through Parliament that your Lordships’ Constitution Committee has not yet had an opportunity to consider the Minister’s response. It will, I am sure, assist your Lordships if the Minister, when responding to this group of amendments could explain the need for retrospective cancellation of court judgments in this context and answer the other questions I have posed.

Lord Wallace of Tankerness Portrait Lord Wallace of Tankerness [V]
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My Lords, in Committee I made the point that even during a crisis it is still important that we are vigilant in scrutinising legislation, particularly where basic rule of law issues are at stake. Specifically, I drew attention to the provisions in the Bill that raise the fundamental question of retrospective legislation. The noble Lord, Lord Pannick, one of my fellow members of the Constitution Committee, has just outlined why it is important that we closely scrutinise attempts by government to introduce retrospection in legislation.

I place on record my thanks to the noble Earl, Lord Howe, for his very prompt reply to some of the points I raised in Committee—echoed by the noble Lord, Lord Howarth of Newport, who is also on the Constitution Committee. As the noble Lord, Lord Pannick, indicated, we have now received the Government’s response to the Constitution Committee’s seventh report on the Bill—although, as he pointed out, the committee has not had a proper opportunity to consider that response.

As we have heard, retrospective legislation prima facie offends the rule of law, although it is recognised that there will be occasions, when there is an urgent or compelling need, when it may be necessary. I will address the retrospection issues in Amendment 40 and its equivalent Northern Ireland provision, Amendment 42. They draw particular attention to the retrospective nature of Clauses 10 and 11, which suspend directors’ liability for wrongful trading in Great Britain and Northern Ireland.

Under insolvency legislation, the general rule is that a court may hold directors personally liable for allowing a company to continue trading beyond the point when insolvency appears inevitable. The provisions in Clauses 10 and 11 oblige the courts to assume that a director is not responsible for any worsening of the financial position of the company or its creditors that occurs during the “relevant period”, which starts on 1 March and—with reference to the amendment the Government have just moved—would conclude on 30 September this year.

Clearly, if that is the assumption the courts are obliged to make—there is no suggestion in the legislation that it is a rebuttable presumption—no one will go to court to challenge the behaviour of a director. Indeed, the rationale for the policy, set out in the Explanatory Notes and reiterated in the Government’s response to the Constitution Committee report, is that the deterrent to a company continuing to trade where there is a threat of insolvency is removed by these clauses. Pandemic-induced insolvencies can thus be avoided.

To use the words of the Explanatory Notes, I fully recognise the merit of helping

“to prevent businesses, which would be viable but for the impact of the pandemic, from closing.”

I suspect that most, if not all, of us would generally assent to that. However, I will point out two aspects of the Government’s arguments that need further clarification. As pointed out in the Constitution Committee’s seventh report, the removal of the so-called deterrent effect cannot credibly be said to have carried any weight in decisions taken by directors between 1 March and the date when the policy to suspend personal liability for wrongful trading was announced, 28 March, allowing almost four weeks of extra retrospective effect. Secondly, as the Government acknowledge in paragraph 225 of the Explanatory Notes:

“There is no requirement to show that the company’s worsening financial position was due to the COVID-19 pandemic.”

The amendments to which I am speaking seek to maintain the spirit of the concession on wrongful trading and would apply only if the courts are satisfied that on the underlying facts, creditors can discharge the burden of proving that the instance of wrongful trading was not attributable to the financial pressures of the pandemic.

The Constitution Committee’s seventh report says that

“measures with retrospective effect are exceptional and undesirable in principle, requiring the strongest possible justification. We do not think the Government has yet made the case for them”.

As we heard from the noble Lord, Lord Pannick, the Government have now responded. In fairness, in my reading of that response the Minister seeks to give some justification for the exceptional retrospective effect of these provisions in relation to wrongful trading. I echo the noble Lord, Lord Pannick: it would be helpful if the Government could set out on the record, on the Floor of the House, what these justifications are.

Furthermore, on page 4 of his reply the noble Lord, Lord Callanan, states that

“the temporary suspension of liability for wrongful trading is required to mitigate the effects of the COVID-19 emergency, and is a proportionate measure. There are safeguards against abuse in the form of other, unchanged elements of Company and Insolvency law. As I have also set out above, given the inevitable delay in drawing up legislation, it was essential to give public assurance that these provisions would have retrospective effect in order for them to be able to have their intended effect on directors’ confidence in continuing to keep their companies going.”

In conclusion, I have two questions for the Minister arising from that response. First, what is the rationale for the retrospection’s having effect from 1 March, rather than from a date when the Government were able to give the public assurance referred to by the noble Lord, Lord Callanan, given that ahead of the announcement, there could be no removal of the so-called deterrent effect? Secondly, can the Minister confirm that an announcement by the Government of their intention to change the law is not, by itself, sufficient justification for using retrospective legislation and should not become a regular practice? I look forward with interest to her reply.

Lord Bates Portrait The Deputy Speaker
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Baroness Fookes? I call Lord Bourne.

Lord Bourne of Aberystwyth Portrait Lord Bourne of Aberystwyth [V]
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My Lords, I support Amendment 40 in the names of the noble and learned Lord, Lord Wallace of Tankerness, the noble Baroness, Lady Taylor of Bolton, the noble Lord, Lord Pannick, and my noble friend Baroness Fookes. I share the concern about the retrospective nature of some of the amendments. I accept that in extremis, in rare situations, retrospective legislation may be justifiable, but I would welcome the Minister addressing why it is felt to be appropriate here.

At Second Reading I expressed my concern that the offence of wrongful trading is being disregarded in relation to matters that are not Covid-19-related. It is quite reasonable, as the noble and learned Lord, Lord Wallace of Tankerness, has just indicated, that there should be some mitigation of the provisions in relation to Covid-19-related deaths. However, if the insolvency is not due to Covid-19, it is hard to see why the provision should be suspended. This provision, brought in as a result of the recommendations of the Cork committee in the 1980s, was widely welcomed as tackling conduct by directors acting—or in some cases, failing to act—with malfeasance, resulting in companies having substantial debts and doing damage to employees and shareholders. I can see why that may need to be suspended for Covid-19-related deaths, but this goes further. That is why I support this amendment, which would minimise the effect of the suspension of wrongful trading. It would be suspended not in relation to broader activities but only to those concerning Covid-19-related deaths.

However, of greater concern, as we have just heard, is the retrospective nature of this part of the Bill. I would welcome the Minister addressing these points. In any event, the Government have gone further on wrongful trading than they should have. They are seeking to punish creditors who have debts that could well be enforced, as they have nothing to do with the Covid-19 emergency.

Baroness Barker Portrait Baroness Barker
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My Lords, I thank the noble Lord, Lord Callanan, for listening to what was clearly a compelling speech by me in Committee and bringing forward Amendment 39, which extends from 30 June to 30 September the period during which the relaxation of judgment in relation to wrongful trading will apply. I say this not because of any wish to encourage wrongful trading or to see people who trade wrongfully not properly held to account by a court, but because I know from experience of helping companies trying to get through periods of instability—charities, in my case—that they simply may not know at this point whether they will be wrongfully trading next month.

I absolutely understand the point made by the noble Lord, Lord Pannick—I would not wish to disagree with him—and my noble and learned friend Lord Wallace of Tankerness that a government policy announcement is no substitute for legislation coming into effect. Nevertheless, we are debating these matters today, when the Prime Minister has made an announcement that could have a direct material effect on some businesses, which might, as a result of the changes to physical distancing rules, become viable over the coming months. They will not know whether they will be completely viable until they can see the beginnings of the return of trade and business as a result of the end of lockdown. A business that would be wrongfully trading were it to abide by the 30 June rules might be able to stabilise and get back into a better position by 30 September.

My argument is pragmatic rather than anything else, but I would not wish to detract in any way from the arguments about retrospection made by the noble Lord, Lord Pannick, and my noble and learned friend Lord Wallace of Tankerness. We should not encourage wrongful trading or give any room for company directors who see that they absolutely are heading for insolvency to take anything other than the proper course of action. We will not do that by extending the deadline in the Bill, provided that the Minister answers the questions from the noble Lord, Lord Pannick, the noble Baroness, Lady Fookes, and my noble and learned friend.

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara [V]
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Briefly, the amendments on dates tabled in Committee that the noble Baroness, Lady Barker, mentioned were also in my name. I am therefore very grateful that the Government have decided to extend the initial period to September 2020. That does not seem to be contested by anybody.

My major point on the rest of the amendments concerns whether there should be retrospection in the Bill at all, but people seem to have broadly accepted that, with the condition that we expect the Minister to make a very full statement on it. In passing, I have received quite a lot of representations about the Bill in my position as the Labour Front-Bench spokesman, and the vast majority were on this particular aspect. Therefore, there is public sensibility about it and I am grateful that the Minister will deal with it when she responds.

Lord Bates Portrait The Deputy Speaker
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Just before I call the Minister, I am going to see whether we can try the noble Baroness, Lady Taylor, again. No? I call the Minister.

Baroness Bloomfield of Hinton Waldrist Portrait Baroness Bloomfield of Hinton Waldrist
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I thank my noble friend Lady Fookes, the noble Baroness, Lady Taylor of Bolton, the noble and learned Lord, Lord Wallace of Tankerness, and the noble Lord, Lord Pannick, for the issues they raised concerning the suspension of wrongful trading and restrictions on winding-up petitions.

I turn first to Amendments 40 and 42, which seek to remove the suspension of wrongful trading in cases where a company’s financial problems are unrelated to the coronavirus. Noble Lords will recall that the purpose of this measure is to remove the potential for wrongful trading liability at a time when many directors have been, and still are, making difficult decisions about the future of their companies. The suspension does not mean that a struggling company could just carry on trading without any regard for the consequences, but that, if it unfortunately enters insolvency, the directors will not face personal liability for using their best endeavours and trading while the pandemic is having such an impact on businesses.

Amendments 40 and 42 would disapply the suspension of wrongful trading if it can be shown that the underlying causes of the problems are unrelated to Covid-19. While this is a laudable aim, I fear that at this uncertain time it would be very difficult for directors to disentangle the various reasons for their company’s woes. Asking them to be 100% certain that those difficulties are related exclusively to Covid-19 before continuing to trade may be a test too far. Moreover, they would want to be 100% certain. The threat of personal liability is a very effective deterrent and directors do not want to put themselves in a position where they could lose their house if they took the risk of trying to save a struggling company. The stakes here are high: if there is any doubt—and in most situations there surely will be—directors would be likely to cease trading and the objective of this measure will not be achieved.

We understand noble Lords’ concerns about a blanket suspension of liability, but other protections for creditors and the wider business community will continue to apply. For example, directors’ duties under the Companies Act 2006 and directors disqualification actions are not affected. For it to be successful in its objective to save otherwise viable businesses, the blanket suspension given by Clauses 10 and 11 is necessary.

The noble and learned Lord, Lord Wallace, and the noble Lord, Lord Pannick, asked why we are suspending trading from 1 March, as indeed did my noble friend Lord Bourne. Wrongful trading does not in itself affect normal business; rather it is the recovery action that may be made retrospectively by an insolvency officeholder against the company’s directors after the company enters insolvency proceedings. Suspension of the wrongful trading liability will not interfere with normal relationships between a business and its customers.

I turn next to Amendments 103 and 106, which would remove the retrospective provision in Schedules 10 and 11 regarding the making of winding-up orders. We understand the concerns of noble Lords regarding retrospection. This is not a step to be taken lightly and, if it is misapplied, retrospective legislation could indeed lead to significant injustice. We do not dispute the conclusion of the Constitution Committee that such measures should be based on need rather than on desirability. However, the need for retrospection in the context of this measure has been amply demonstrated, and I believe that there has been an especially compelling justification for these provisions.

Certain creditors have shown that they will pursue their debts despite government requests for pragmatism or forbearance, regardless of whether such action is in the interest of the survival of other businesses and irrespective of the impact on the economy as a whole. It is because the evidence demonstrates that the restraint required in the current circumstances can be guaranteed only through legislation that the Government have brought forward this widely supported measure.

However, its purpose would be wholly undermined if the protection it gives against certain types of undesirable creditor behaviour were to begin only after Royal Assent. That approach could have led only to an immediate rush to court by creditors urgently seeking winding-up orders in order to beat the deadline. That would have defeated the legislation even before it reached this House. It is right that creditors who have obtained winding-up orders specifically to frustrate Parliament’s legislative intention should not benefit from that behaviour. That is particularly so when the behaviour has caused potentially significant harm to a company that was the subject of a petition.

The noble Lord, Lord Pannick, and the noble and learned Lord, Lord Wallace, also asked how anyone could tell whether an order made between 27 April and the Bill coming into force is void. It is possible that a small number of creditors may not have acted responsibly and have brought winding-up petitions on the basis of the current law despite the Government’s previous announcement that this will not be allowed. The official receiver, or in Scotland the interim liquidator, will be required to bring any such circumstances to the attention of the court so that it can take appropriate measures.

I hope that noble Lords will understand why we are not able to accept Amendments 40, 42, 103 and 106, and that they will agree not to press them.

Amendment 39 agreed.

Amendment 40 not moved.

Clause 11: Suspension of liability for wrongful trading: Northern Ireland

Amendment 41

Moved by

41: Clause 11, page 65, line 40, leave out from “30” to end of line 41 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of Clause 11 so that the period ends with 30 September 2020.

Amendment 41 agreed.

Amendment 42 not moved.

Clause 13: Temporary exclusion for small suppliers: Great Britain

Amendment 43

Moved by

43: Clause 13, page 70, line 10, leave out from “30” to end of line 11 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of subsection (1)(a) of Clause 13 so that the period ends with 30 September 2020.

Amendment 43 agreed.

Clause 17: Temporary exclusion for small suppliers: Northern Ireland

Amendment 43

44: Clause 17, page 77, line 1, leave out from “30” to end of line 2 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of subsection (1)(a) of Clause 17 so that the period ends with 30 September 2020.

Amendment 44 agreed.

Amendment 45

Moved by

45: After Clause 17, insert the following new Clause—

“Review of pre-pack transactions

In Schedule B1 to the Insolvency Act 1986, after paragraph 74 insert—“Review of pre-pack transactions(1) The assets of a company may not be transferred under the terms of a pre-pack transaction unless the proposed purchaser has obtained an opinion in writing from a member of the pre-pack pool that the transaction is not unreasonable.(2) In this paragraph, a “pre-pack transaction” means a transaction which is negotiated before a company enters administration, and under which all or a substantial part of the company’s assets are sold to an associate on or shortly after the appointment of an administrator.(3) For the purposes of sub-paragraph (2), “associate” has the meaning given in section 435 of the Insolvency Act 1986.””Member’s explanatory statement

This new Clause requires a positive opinion to be obtained from a member of the pre-pack pool before a company enters into a pre-pack transaction. The pre-pack pool is an independent body of experienced business people set up in response to the recommendations of Teresa Graham’s report.

Lord Hodgson of Astley Abbotts Portrait Lord Hodgson of Astley Abbotts
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My Lords, I listened carefully to what my noble friend said a few minutes ago. He will not expect me to be delighted by it—it was very disappointing. Perhaps I may deal with the objections that he raised, as it is worth while to do so briefly.

My noble friend gave three reasons why the pre-pack pool should not be given the powers to control or regulate pre-pack transactions. The first was that, where the creditors wanted to go ahead, a transaction could be frustrated by a pre-pack pool member saying that it could not. His officials should get a life. The creditors are at the bottom of a waterfall and, if they say that they want it to go ahead, it should, although it will probably never happen in that way. Also, my amendment refers to the transaction not being “unreasonable”: it sets a very low bar.

Secondly, my noble friend said that the definition of “associate” was faulty. I have no pride in this. If he changed the definition of “associate”, I would accept that. He has the definition in his hands and can do with it what he wishes.

Thirdly, why did the Government set up a single pre-pack pool if they wanted only a single source of permissions? It was perfectly simple. It is worth noting that the pool is set up by professional bodies. When, a week ago, I said that there were conflicts of interest in the appointment of monitors, he said to me, “No, we don’t need to worry about that because it is run by professional bodies, and they will make sure that they have codes of conduct, which means that there will not be conflicts of interest. Therefore, I should not accept your amendment.” That applies just as much to the pre-pack pool, which is the product of a series of highly respected professional bodies.

My noble friend also said—I was delighted to hear this—that those running the Pension Protection Fund have said that there had been no trouble with pre-packs. Long may that last.

My noble friend also said that a review would be available this summer. However, we do not need a review; we need somebody in charge to do something while we come out of a pandemic. That is the whole purpose of my amendment. We are not looking for a review; we are looking for something better than the pre-pack pool to be put in place. To be fair to the Government and to my noble friend, the chances of the Government being able to find the time to produce this important but small reform with everything else that is going on are vanishingly small. Therefore, we will be living with the situation where pre-packs are unregulated post the collapse of the pre-pack pool.

To come to the point, I want to keep the pre-pack pool in existence, and that is what my amendment is about. It is not about politics; it is about good business practice. It is about fairness and about helping the deserving case and stopping the crooked one. It is about protecting firms and suppliers from being ripped off, and it is about assisting the Pension Protection Fund.

I was very sad to hear the noble Lord, Lord Stevenson, whom I have always found to be a man of discerning judgment, speaking on behalf of the Labour Party and saying that he could not support the amendment. Instead, he is creeping away from the sound of the battle and covering himself with the fig-leaf that somehow we should not endow non-statutory bodies with statutory powers. If that is a big constitutional point, we might have heard about it when he spoke about this at earlier stages of the Bill.

In conclusion, those who read their Damon Runyon will be familiar with a character called Harry the Horse, whose catchphrase was, “Put up or shut up”. After 15 years on this subject, during which we have had no real action from the Government, the time has come for those of us who believe that fairness is what we should be aiming for to “put up”. I beg leave to test the opinion of the House.

Amendment 46 not moved.

Clause 20: Restrictions

Amendment 47

Moved by

47: Clause 20, page 79, line 6, at end insert—

“( ) the need for the provision made by the regulations is urgent,”Member’s explanatory statement

This amendment makes urgency a condition of the exercise of the power in Clause 18.

Amendment 47 agreed.

Clause 21: Time-limited effect

Amendment 48 not moved.

Clause 22: Expiry

Amendment 49

Moved by

49: Clause 22, page 80, line 14, leave out from “which is” to end of line 15 and insert—

“(i) after the period of one year beginning with the date for the time being specified in subsection (1), or(ii) after the period of two years beginning with the date on which this Act is passed, but”Member’s explanatory statement

This amendment prevents regulations under Clause 18 being made more than two years after Royal Assent.

Amendment 49 agreed.

Amendment 50 not moved.

Clause 24: Procedure for regulations

Amendments 51 to 53

Moved by

51: Clause 24, page 80, line 29, after “applies,” insert “or

(b) regulations made under section 23 which make provision by amending an Act or an Act of the Scottish Parliament,”.Member’s explanatory statement

This amendment and the Minister’s final amendment to Clause 24 provide for regulations under Clause 23 (consequential provision etc) which amend an Act or an Act of the Scottish Parliament to be subject to the made affirmative procedure.

52: Clause 24, page 80, line 38, at end insert—

“(4A) Where regulations cease to have effect as a result of subsection (3) that does not— (a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement

This amendment clarifies that if regulations under Clause 18 cease to have effect that does not affect anything previously done under or by virtue of the regulations or prevent the making of new regulations.

53: Clause 24, page 81, line 6, after “section 23” insert “which do not make provision by amending an Act or an Act of the Scottish Parliament”

Member’s explanatory statement

See the statement for the Minister’s first amendment to Clause 24.

Amendments 51 to 53 agreed.

Clause 28: Restrictions

Amendment 54

Moved by

54: Clause 28, page 83, line 5, at end insert—

“( ) the need for the provision made by the regulations is urgent,”Member’s explanatory statement

This amendment makes urgency a condition of the exercise of the power in Clause 26.

Amendment 54 agreed.

Clause 30: Expiry

Amendment 55

Moved by

55: Clause 30, page 84, line 11, leave out from “which is” to end of line 12 and insert—

“(i) after the period of one year beginning with the date for the time being specified in subsection (1), or(ii) after the period of two years beginning with the date on which this Act is passed, but”Member’s explanatory statement

This amendment prevents regulations under Clause 26 being made more than two years after Royal Assent.

Amendment 55 agreed.

Clause 32: Procedure for regulations made by the Department

Amendments 56 to 58

Moved by

56: Clause 32, page 84, line 28, after “applies,” insert “and regulations made under section 31 by the Department which make provision by amending an Act or Northern Ireland legislation,”

Member’s explanatory statement

This amendment and the Minister’s final amendment to Clause 32 provide for regulations made by the Department for the Economy under Clause 31 (consequential provision etc) which amend an Act or Northern Ireland primary legislation to be subject to the made affirmative procedure in the Northern Ireland Assembly.

57: Clause 32, page 84, line 38, at end insert—

“(4A) Where regulations cease to have effect as a result of subsection (3) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement

This amendment clarifies that if regulations made by the Department for the Economy in Northern Ireland cease to have effect that does not affect anything previously done under or by virtue of the regulations or prevent the making of new regulations.

58: Clause 32, page 85, line 4, after “section 31” insert “which do not make provision by amending an Act or Northern Ireland legislation”

Member’s explanatory statement

See the statement for the Minister’s first amendment to Clause 32.

Amendments 56 to 58 agreed.

Clause 33: Procedure for regulations made by the Secretary of State

Amendments 59 to 61

Moved by

59: Clause 33, page 85, line 22, after “applies,” insert “or

(b) regulations made under section 31 by the Secretary of State which make provision by amending an Act,”Member’s explanatory statement

This amendment and the Minister’s final amendment to Clause 33 provide for regulations made by the Secretary of State under Clause 31 (consequential provision etc) which amend an Act to be subject to the made affirmative procedure.

60: Clause 33, page 85, line 31, at end insert—

“(4A) Where regulations cease to have effect as a result of subsection (3) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement

This amendment clarifies that if regulations made by the Secretary of State cease to have effect that does not affect anything previously done under or by virtue of the regulations or prevent the making of new regulations.

61: Clause 33, page 85, line 43, after “section 31” insert “which do not make provision by amending an Act”

Member’s explanatory statement

See the statement for the Minister’s first amendment to Clause 33.

Amendments 59 to 61 agreed.

Clause 39: Power to change duration of temporary provisions: Great Britain

Amendments 62 and 63

Moved by

62: Clause 39, page 88, line 43, at end insert “if the Secretary of State considers it reasonable to do so to mitigate an effect of coronavirus.”

Member’s explanatory statement

This amendment would mean that the power to make regulations under clause 39(1)(b) could be exercised only if the Secretary of State considered it reasonable to exercise the power to mitigate an effect of coronavirus.

63: Clause 39, page 88, line 44, after “section” insert “—

“coronavirus” means severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2);”Member’s explanatory statement

This amendment is consequential on the first amendment to clause 39 in the name of Lord Callanan.

Amendments 62 and 63 agreed.

Clause 40: Power to change duration of temporary provisions: Northern Ireland

Amendments 64 and 65

Moved by

64: Clause 40, page 89, line 34, at end insert “if the Department considers it reasonable to do so to mitigate an effect of coronavirus.”

Member’s explanatory statement

This amendment would mean that the power to make regulations under Clause 40(1)(b) could be exercised only if the Department for the Economy in Northern Ireland considered it reasonable to exercise the power to mitigate an effect of coronavirus.

65: Clause 40, page 89, line 35, after “section” insert “—

“coronavirus” means severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2);”Member’s explanatory statement

This amendment is consequential on the first amendment to Clause 40 in the name of Lord Callanan.

Amendments 64 and 65 agreed.

Clause 41: Modified procedure for regulations of the Secretary of State

Amendments 66 to 68

Moved by

66: Clause 41, page 90, line 39, leave out “negative resolution” and insert “made affirmative”

Member’s explanatory statement

This amendment changes Clause 41 so that provision that could formerly have been made by the negative resolution procedure now has to be made by the made affirmative procedure (or the affirmative procedure).

67: Clause 41, page 90, line 43, at end insert—

“(aa) provision under section A49A(1) of the Insolvency Act 1986 (moratorium: power to make provision in connection with pension schemes);”Member’s explanatory statement

This amendment ensures that, for the first six months, provision made under the power conferred by new section A49A(1) may be made by regulations that are subject to the made affirmative procedure.

68: Clause 41, page 91, line 28, leave out paragraph (b) and insert—

“(b) “regulations that are subject to the made affirmative procedure” means regulations that—(i) are contained in a statutory instrument that must be laid before Parliament as soon as reasonably practicable after being made, and(ii) cease to have effect at the end of the period of 40 days beginning with the day on which the instrument is made, unless during that period the instrument is approved by a resolution of each House of Parliament.(6) In calculating the period of 40 days mentioned in subsection (5)(b)(ii), no account is to be taken of any time during which—(a) Parliament is dissolved or prorogued, or(b) both Houses of Parliament are adjourned for more than 4 days. (7) Where by virtue of this section the Secretary of State makes regulations that are subject to the made affirmative procedure and the regulations cease to have effect because they are not approved within the period mentioned in subsection (5)(b)(ii), the fact that the regulations cease to have effect does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement

This amendment defines “made affirmative procedure” for the purposes of the Minister’s first amendment to Clause 41.

Amendments 66 to 68 agreed.

Clause 42: Modified procedure for regulations of the Welsh Ministers

Amendments 69 and 70

Moved by

69: Clause 42, page 91, line 35, leave out “negative resolution” and insert “made affirmative”

Member’s explanatory statement

This amendment changes Clause 42 so that provision that could formerly have been made by the negative resolution procedure now has to be made by the made affirmative procedure (or the affirmative procedure).

70: Clause 42, page 92, line 6, leave out paragraph (b) and insert—

“(b) “regulations that are subject to the made affirmative procedure” means regulations that—(i) are contained in a statutory instrument that must be laid before Senedd Cymru as soon as reasonably practicable after being made, and(ii) cease to have effect at the end of the period of 40 days beginning with the day on which the instrument is made, unless during that period the instrument is approved by a resolution of Senedd Cymru.(5) In calculating the period of 40 days mentioned in subsection (4)(b)(ii), no account is to be taken of any time during which Senedd Cymru is—(a) dissolved, or(b) in recess for more than 4 days.(6) Where by virtue of this section the Welsh Ministers make regulations that are subject to the made affirmative procedure and the regulations cease to have effect because they are not approved within the period mentioned in subsection (4)(b)(ii), the fact that the regulations cease to have effect does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.”Member’s explanatory statement

This amendment defines “made affirmative procedure” for the purposes of the Minister’s other amendment to Clause 42.

Amendments 69 and 70 agreed.

Clause 43: Modified procedure for regulations of the Scottish Ministers

Amendments 71 to 73

Moved by

71: Clause 43, page 92, line 12, after “procedure” insert “(see section 29 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10))”

Member’s explanatory statement

This amendment is needed in light of the Minister’s other amendment to Clause 43(1).

72: Clause 43, page 92, line 13, leave out from “the” to end of line 15 and insert “made affirmative procedure”

Member’s explanatory statement

This amendment changes clause 43 so that provision that could formerly have been made by the negative procedure now has to be made by the made affirmative procedure (or the affirmative procedure).

73: Clause 43, page 92, line 21, at end insert—

“(3) For the purposes of this section “regulations that are subject to the made affirmative procedure” means regulations that—(a) must be laid before the Scottish Parliament as soon as reasonably practicable after being made, and(b) cease to have effect at the end of the period of 40 days beginning with the day on which the regulations are made, unless during that period the regulations are approved by a resolution of the Scottish Parliament.(4) In calculating the period of 40 days mentioned in subsection (3)(b), no account is to be taken of any time during which the Scottish Parliament is—(a) dissolved, or(b) in recess for more than 4 days.(5) Where by virtue of this section the Scottish Ministers make regulations that are subject to the made affirmative procedure and the regulations cease to have effect because they are not approved within the period mentioned in subsection (3)(b), the fact that the regulations cease to have effect does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.(6) Section 30 of the Interpretation and Legislative Reform (Scotland) Act 2010 does not apply in relation to regulations that are subject to the made affirmative procedure by virtue of this section.”Member’s explanatory statement

This amendment defines “made affirmative procedure” for the purposes of the Minister’s first amendment to Clause 43.

Amendments 71 to 73 agreed.

Amendment 74

Moved by

74: After Clause 43, insert the following new Clause—

“Modified procedure for regulations of Northern Ireland departments

(1) During the period of six months beginning with the day on which this section comes into force, any relevant provision that may be made by a Northern Ireland department by regulations that are subject to the affirmative resolution procedure may be made by regulations that are subject to the made affirmative procedure.(2) In subsection (1)“relevant provision” means—(a) provision under Article 13HA(1) of the Insolvency (Northern Ireland) Order 1989 (power to modify moratorium provisions in relation to certain companies);(b) provision under Article 13HAA(1) of that Order (moratorium: power to make provision in connection with pension schemes).(3) For the purposes of this section—(a) “regulations that are subject to the affirmative resolution procedure” means regulations that may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the Assembly; (b) “regulations that are subject to the made affirmative procedure” means regulations that—(i) must be laid before the Assembly as soon as reasonably practicable after being made, and(ii) cease to have effect at the end of the period of 40 days beginning with the day on which the regulations are made, unless during that period the regulations are approved by a resolution of the Assembly.(4) In calculating the period of 40 days mentioned in subsection (3)(b)(ii), no account is to be taken of any time during which the Assembly is—(a) dissolved,(b) in recess for more than 4 days, or(c) adjourned for more than 6 days.(5) Where by virtue of this section a Northern Ireland department makes regulations that are subject to the made affirmative procedure and the regulations cease to have effect because they are not approved within the period mentioned in subsection (3)(b)(ii), the fact that the regulations cease to have effect does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.(5) In this section “the Assembly” means the Northern Ireland Assembly.”Member’s explanatory statement

This amendment modifies the regulation-making procedure for certain regulations for the first six months.

Amendment 74 agreed.

Schedule 1: Moratoriums in Great Britain: eligible companies

Amendment 75

Moved by

75: Schedule 1, page 102, line 9, at end insert—

“17A A company is excluded from being eligible unless, before the filing date, it has consulted all the persons who are the appropriate representatives of any of the employees who may be affected by the proposed moratorium or by any reasonably foreseeable consequences of it about those matters.”

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara [V]
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My Lords, I listened very carefully to the Minister when he spoke at the start of the debate on the first group. I am grateful to him for spelling out the current position for employees in companies in difficulty, including the statutory safeguards on pay and allowances, what would happen in redundancy situation, and the protection for conditions during any moratorium period. I found that very helpful.

But the main thrust of his speech was to add further reassurances from the Dispatch Box on two issues. One was to let us know that the Government had decided that although there would be a statutory review of the new procedures brought in by the moratorium, to be done within five years, this would be brought forward to no more than three years in case there was a question of how employees were being treated. There was a confirmation that should it be discovered in the review that there were some negatives happening or any detriment to the position of employees, the Government would be prepared to bring forward primary legislation to resolve those if that was required. The second was to have consideration to whether or not—I am sorry, I have lost my notes. But I wish to put on the record that I am very grateful to the Government for their two concessions in this matter. As a result, I wish to withdraw the amendment.

Amendment 75 withdrawn.

Amendment 76

Moved by

76: Schedule 1, page 103, line 2, after “Schedule” insert “, apart from paragraph 2,”

Member’s explanatory statement

This amendment limits the Secretary of State’s power to amend new Schedule ZA1 so that it cannot be used to amend paragraph 2 (exclusion from eligibility for companies subject to moratorium or insolvency procedure etc).

Amendment 76 agreed.

Schedule 3: Moratoriums in Great Britain: further amendments

Amendments 77 to 84

Moved by

77: Schedule 3, page 107, line 24, leave out from “debts” to end of line 27 and insert “(within the meaning given by section 174A);

(b) priority pre-moratorium debts (within the meaning given by section 174A).” Member’s explanatory statement

This amendment reflects the changes made by the Minister’s amendments to new section 174A of the Insolvency Act 1986 (on page 109 of the Bill).

78: Schedule 3, page 107, line 30, leave out sub-paragraph (3)

Member’s explanatory statement

This amendment leaves out definitions that are no longer needed because of the Minister’s other amendment to page 107.

79: Schedule 3, page 109, line 13, leave out from “and” to end of line 15 and insert “priority pre-moratorium debts.

(2A) In subsection (2)(b) “priority pre-moratorium debt” means—(a) any pre-moratorium debt that is payable in respect of—(i) the monitor’s remuneration or expenses,(ii) goods or services supplied during the moratorium,(iii) rent in respect of a period during the moratorium, or(iv) wages or salary arising under a contract of employment, so far as relating to a period of employment before or during the moratorium,(b) any pre-moratorium debt that—(i) consists of a liability to make a redundancy payment, and(ii) fell due before or during the moratorium, and(c) any pre-moratorium debt that—(i) arises under a contract or other instrument involving financial services,(ii) fell due before or during the moratorium, and(iii) is not relevant accelerated debt (see subsection (2B)).(2B) For the purposes of subsection (2A)(c)—“relevant accelerated debt” means any pre-moratorium debt that fell due during the relevant period by reason of the operation of, or the exercise of rights under, an acceleration or early termination clause in a contract or other instrument involving financial services;“the relevant period” means the period—(a) beginning with the day on which the statement under section A6(1)(e) is made, and (b) ending with the last day of the moratorium.”Member’s explanatory statement

This amendment clarifies which pre-moratorium debts get priority for the purposes of new section 174A(2) of the Insolvency Act 1986. Among other things, it excludes certain debts that fall due during the moratorium because they are accelerated (for example, because the creditor exercises a contractual right to require immediate payment in full).

80: Schedule 3, page 109, line 18, at end insert—

“(3A) The Secretary of State may by regulations made by statutory instrument amend this section for the purposes of changing the definition of “moratorium debt” or “priority pre-moratorium debt” in this section.(3B) Regulations under subsection (3A) may make consequential, supplementary, incidental or transitional provision or savings.(3C) A statutory instrument containing regulations under subsection (3A) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member’s explanatory statement

This amendment confers power on the Secretary of State to change the definitions of “moratorium debt” and “priority pre-moratorium debt” for the purposes of new section 174A(2) of the Insolvency Act 1986.

81: Schedule 3, page 109, leave out lines 23 and 24 and insert—

“(5) Any rules made under section A18(4) (meaning of supply of goods or services) apply also for the purposes of subsection (2A)(a)(ii) of this section.(6) In this section—“acceleration or early termination clause”, in relation to a contract or other instrument involving financial services, means a provision of the contract or other instrument—(a) under which, on the happening of an event—(i) a debt or other liability falls due earlier than it otherwise would, or(ii) a debt or other liability is terminated and replaced by another debt or liability, or(b) which confers on a party a right which, if exercised, will result in —(i) a debt or other liability falling due earlier than it otherwise would, or(ii) a debt or other liability being terminated and replaced by another debt or liability;“contract or other instrument involving financial services” has the same meaning as it has for the purposes of section A18 (see Schedule ZA2);“monitor’s remuneration or expenses” has the meaning given by section A18;“moratorium debt” has the meaning given by section A51;“pre-moratorium debt” has the meaning given by section A51;“redundancy payment” has the meaning given by section A18;“wages or salary” has the meaning given by section A18.”Member’s explanatory statement

This amendment defines expressions used in the Minister’s first amendment to page 109.

82: Schedule 3, page 111, line 25, leave out from “debts” to end of line 28 and insert “(within the meaning given by section 174A), and

(b) priority pre-moratorium debts (within the meaning given by section 174A).”Member’s explanatory statement

This amendment reflects the changes made by the Minister’s amendments to new section 174A of the Insolvency Act 1986 (on page 109 of the Bill).

83: Schedule 3, page 111, line 37, leave out “pre-moratorium debts mentioned in sub-paragraph (2)” and insert “priority pre-moratorium debts”

Member’s explanatory statement

This amendment is consequential on the Minister’s first amendment to page 111.

84: Schedule 3, page 111, leave out lines 41 and 42

Member’s explanatory statement

This amendment leaves out definitions that are no longer needed because of the Minister’s first amendment to page 111.

Amendments 77 to 84 agreed.

Schedule 4: Moratoriums in Great Britain: temporary provision

Amendment 85

Moved by

85: Schedule 4, page 124, line 26, leave out from “30” to end of line 27 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of Schedule 4 so that the period ends with 30 September 2020.

Amendment 85 agreed.

Schedule 5: Moratoriums in Northern Ireland: eligible companies

Amendment 86

Moved by

86: Schedule 5, page 154, line 7, after “Schedule” insert “, apart from paragraph 2,”

Member’s explanatory statement

This amendment limits the Department’s power to amend new Schedule ZA1 so that it cannot be used to amend paragraph 2 (exclusion from eligibility for companies subject to moratorium or insolvency procedure etc).

Amendment 86 agreed.

Schedule 7: Moratoriums in Northern Ireland: further amendments

Amendments 87 to 95

Moved by

87: Schedule 7, page 158, line 17, after ““Part 1A,”” insert “Article 148A(3A),”

Member’s explanatory statement

This amendment paves the way for the Minister’s amendments to new Article 148A of the Insolvency (Northern Ireland) Order 1989 (on page 160 of the Bill).

88: Schedule 7, page 158, line 40, leave out from “debts” to end of line 3 on page 159 and insert “(within the meaning given by Article 148A);

(b) priority pre-moratorium debts (within the meaning given by Article 148A);”Member’s explanatory statement

This amendment reflects the changes made by the Minister’s amendments to new Article 148A of the Insolvency (Northern Ireland) Order 1989 (on page 160 of the Bill).

89: Schedule 7, page 159, line 8, leave out sub-paragraph (4)

Member’s explanatory statement

This amendment leaves out definitions that are no longer needed because of the Minister’s second amendment to page 158.

90: Schedule 7, page 160, line 31, leave out from “and” to end of line 33 and insert “priority pre-moratorium debts.

(2A) In paragraph (2)(b) “priority pre-moratorium debt” means—(a) any pre-moratorium debt that is payable in respect of—(i) the monitor’s remuneration or expenses,(ii) goods or services supplied during the moratorium,(iii) rent in respect of a period during the moratorium, or(iv) wages or salary arising under a contract of employment, so far as relating to a period of employment before or during the moratorium,(b) any pre-moratorium debt that—(i) consists of a liability to make a redundancy payment, and(ii) fell due before or during the moratorium, and(c) any pre-moratorium debt that— (i) arises under a contract or other instrument involving financial services,(ii) fell due before or during the moratorium, and(iii) is not relevant accelerated debt (see paragraph (2B)).(2B) For the purposes of paragraph (2A)(c)—“relevant accelerated debt” means any pre-moratorium debt that fell due during the relevant period by reason of the operation of, or the exercise of rights under, an acceleration or early termination clause in a contract or other instrument involving financial services;“the relevant period” means the period—(a) beginning with the day on which the statement under Article 13BC(1)(e) is made, and(b) ending with the last day of the moratorium.”Member’s explanatory statement

This amendment clarifies which pre-moratorium debts get priority for the purposes of new Article 148A(2) of the Insolvency (Northern Ireland) Order 1989. Among other things, it excludes certain debts that fall due during the moratorium because they are accelerated (for example, because the creditor exercises a contractual right to require immediate payment in full).

91: Schedule 7, page 160, line 36, at end insert—

“(3A) Regulations may amend this Article for the purposes of changing the definition of “moratorium debt” or “priority pre-moratorium debt” in this Article.(3B) Regulations under paragraph (3A) may make consequential, supplementary, incidental or transitional provision or savings.(3C) Regulations may not be made under paragraph (3A) unless a draft of the regulations has been laid before, and approved by a resolution of, the Assembly.”Member’s explanatory statement

This amendment confers power on the Department for the Economy in Northern Ireland to change the definitions of “moratorium debt” and “priority pre-moratorium debt” for the purposes of new Article 148A(2) of the Insolvency (Northern Ireland) Order 1989.

92: Schedule 7, page 160, leave out lines 41 and 42 and insert—

“(5) Any rules made under Article 13D(4) (meaning of supply of goods or services) apply also for the purposes of paragraph (2A)(a)(ii) of this Article.(6) In this Article—“acceleration or early termination clause”, in relation to a contract or other instrument involving financial services, means a provision of the contract or other instrument—(a) under which, on the happening of an event—(i) a debt or other liability falls due earlier than it otherwise would, or (ii) a debt or other liability is terminated and replaced by another debt or liability, or(b) which confers on a party a right which, if exercised, will result in —(i) a debt or other liability falling due earlier than it otherwise would, or(ii) a debt or other liability being terminated and replaced by another debt or liability;“contract or other instrument involving financial services” has the same meaning as it has for the purposes of Article 13D (see Schedule ZA2);“monitor’s remuneration or expenses” has the meaning given by Article 13D;“moratorium debt” has the meaning given by Article 13HC;“pre-moratorium debt” has the meaning given by Article 13HC; “redundancy payment” has the meaning given by Article 13D;“wages or salary” has the meaning given by Article 13D.”Member’s explanatory statement

This amendment defines expressions used in the Minister’s first amendment to page 160.

93: Schedule 7, page 162, line 7, leave out from “debts” to end of line 10 and insert “(within the meaning given by Article 148A), and

(b) priority pre-moratorium debts (within the meaning given by Article 148A).”Member’s explanatory statement

This amendment reflects the changes made by the Minister’s amendments to new Article 148A of the Insolvency (Northern Ireland) Order 1989 (on page 160 of the Bill).

94: Schedule 7, page 162, line 18, leave out “pre-moratorium debts mentioned in sub-paragraph (2)” and insert “priority pre-moratorium debts”

Member’s explanatory statement

This amendment is consequential on the Minister’s first amendment to page 162.

95: Schedule 7, page 162, leave out lines 22 and 23

Member’s explanatory statement

This amendment leaves out definitions that are no longer needed because of the Minister’s first amendment to page 162.

Amendments 87 to 95 agreed.

Schedule 8: Moratoriums in Northern Ireland: temporary provision

Amendment 96

Moved by

96: Schedule 8, page 168, line 11, leave out from “30” to end of line 12 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of Schedule 8 so that the period ends with 30 September 2020.

Amendment 96 agreed.

Schedule 9: Arrangements and reconstructions for companies in financial difficulties

Amendments 97 to 101

Moved by

97: Schedule 9, page 186, line 24, leave out from second “a” to end of line 28 and insert “priority pre-moratorium debt.”

Member’s explanatory statement

See the explanatory statement for the Minister’s second amendment on page 186 of the Bill.

98: Schedule 9, page 186, line 43, leave out from “debt”” to end of line 6 on page 187 and insert “—

(a) in the case of a moratorium under Part A1 of the Insolvency Act 1986, has the same meaning as in section 174A of that Act;(b) in the case of a moratorium under Part 1A of the Insolvency (Northern Ireland) Order 1989, has the same meaning as in Article 148A of that Order;“priority pre-moratorium debt”—(a) in the case of a moratorium under Part A1 of the Insolvency Act 1986, has the same meaning as in section 174A of that Act; (b) in the case of a moratorium under Part 1A of the Insolvency (Northern Ireland) Order 1989, has the same meaning as in Article 148A of that Order.”Member’s explanatory statement

The Minister’s amendments on page 186 of the Bill provide that the creditors to whom new section 901H of the Companies Act 2006 applies are those in respect of “moratorium debts” and “priority pre-moratorium debts” within the meaning of section 174A of the Insolvency Act 1986 or Article 148A of the Insolvency (Northern Ireland) Order 1989 (which provide for those kinds of debt to have priority in a winding-up).

99: Schedule 9, page 187, line 6, at end insert—

“901HA Pension schemes(1) In a case where the company in respect of which a compromise or arrangement is proposed is or has been an employer in respect of an occupational pension scheme that is not a money purchase scheme, any notice or other document required to be sent to a creditor of the company must also be sent to the Pensions Regulator.(2) In a case where the company in respect of which a compromise or arrangement is proposed is an employer in respect of an eligible scheme, any notice or other document required to be sent to a creditor of the company must also be sent to the Board of the Pension Protection Fund (“the Board”).(3) The Secretary of State may by regulations provide that, in a case where—(a) the company in respect of which a compromise or arrangement is proposed is an employer in respect of an eligible scheme, and(b) the trustees or managers of the scheme are a creditor of the company,the Board may exercise any rights, or any rights of a specified description, that are exercisable under this Part by the trustees or managers as a creditor of the company.(4) Regulations under this section may provide that the Board may exercise any such rights—(a) to the exclusion of the trustees or managers of the scheme, or(b) in addition to the exercise of those rights by the trustees or managers of the scheme.(5) Regulations under this section—(a) may specify conditions that must be met before the Board may exercise any such rights;(b) may provide for any such rights to be exercisable by the Board for a specified period;(c) may make provision in connection with any such rights ceasing to be so exercisable at the end of such a period.(6) Regulations under this section are subject to affirmative resolution procedure (but see subsection (7)).(7) During the period of six months beginning with the day on which this section comes into force, regulations under this section are subject to approval after being made (and subsection (6) does not apply). (8) For the purposes of subsection (7), section 1291 has effect as if any reference in that section to a period of 28 days were to a period of 40 days.(9) In this section—“eligible scheme” means any pension scheme that is an eligible scheme for the purposes of section 126 of the Pensions Act 2004 or Article 110 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1));“employer”— (a) in subsection (1), means an employer within the meaning of section 318(1) of the Pensions Act 2004 or Article 2(2) of the Pensions (Northern Ireland) Order 2005;(b) in subsections (2) and (3)—(i) in the case of a pension scheme that is an eligible scheme for the purposes of section 126 of the Pensions Act 2004, has the same meaning as it has for the purposes of Part 2 of that Act (see section 318(1) and (4) of that Act);(ii) in the case of a pension scheme that is an eligible scheme for the purposes of Article 110 of the Pensions (Northern Ireland) Order 2005, has the same meaning as it has for the purposes of Part 3 of that Order (see Article 2(2) and (5) of that Order);“money purchase scheme” means a pension scheme that is a money purchase scheme for the purposes of the Pension Schemes Act 1993 (see section 181(1) of that Act) or the Pension Schemes (Northern Ireland) Act 1993 (see section 176(1) of that Act);“occupational pension scheme” and “pension scheme” have the meaning given by section 1 of the Pension Schemes Act 1993;“specified” means specified in regulations under this section.”Member’s explanatory statement

This amendment would in certain circumstances require information provided to creditors under Part 26A of the Companies Act 2006 also to be provided to the Pensions Regulator and the Board of the Pension Protection Fund. It also enables the Board to be given the power to exercise rights which could be exercised by the trustees or managers of a pension scheme in proceedings under that Part, such as the right to vote on the proposed compromise or arrangement.

100: Schedule 9, page 198, line 11, leave out from second “a” to end of line 15 and insert “priority pre-moratorium debt.”

Member’s explanatory statement

See the explanatory statement for the Minister’s second amendment on page 198 of the Bill.

101: Schedule 9, page 198, line 30, leave out from “debt”” to end of line 38 and insert “—

(a) in the case of a moratorium under Part A1 of the Insolvency Act 1986, has the same meaning as in section 174A of that Act;(b) in the case of a moratorium under Part 1A of the Insolvency (Northern Ireland) Order 1989, has the same meaning as in Article 148A of that Order;“priority pre-moratorium debt”—(a) in the case of a moratorium under Part A1 of the Insolvency Act 1986, has the same meaning as in section 174A of that Act;(b) in the case of a moratorium under Part 1A of the Insolvency (Northern Ireland) Order 1989, has the same meaning as in Article 148A of that Order.””Member’s explanatory statement

The Minister’s amendments on page 198 of the Bill provide that the creditors to whom new section 899A of the Companies Act 2006 applies are those in respect of “moratorium debts” and “priority pre-moratorium debts” within the meaning of section 174A of the Insolvency Act 1986 or Article 148A of the Insolvency (Northern Ireland) Order 1989 (which provide for those kinds of debt to have priority in a winding-up).

Amendments 97 to 101 agreed.

Schedule 10: Winding-up petitions: Great Britain

Amendment 102

Moved by

102: Schedule 10, page 205, line 30, leave out from “30” to end of line 31 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of Part 1 of Schedule 10 so that the period ends with 30 September 2020.

Amendment 102 agreed.

Amendment 103 not moved.

Amendment 104

Moved by

104: Schedule 10, page 212, line 6, leave out from “30” to end of line 7 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of Part 2 of Schedule 10 so that the period ends with 30 September 2020.

Amendment 104 agreed.

Schedule 11: Winding-up petitions: Northern Ireland

Amendment 105

Moved by

105: Schedule 11, page 213, line 16, leave out from “30” to end of line 17 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of Part 1 of Schedule 11 so that the period ends with 30 September 2020.

Amendment 105 agreed.

Amendment 106 not moved.

Amendment 107

Moved by

107: Schedule 11, page 218, line 41, leave out from “30” to end of line 42 and insert “September 2020.”

Member’s explanatory statement

This amendment alters the definition of the “relevant period” that applies for the purposes of Part 2 of Schedule 11 so that the period ends with 30 September 2020.

Amendment 107 agreed.

Schedule 14: Meetings of companies and other bodies

Amendments 108 and 109

Moved by

108: Schedule 14, page 236, line 5, leave out “or the Treasury under” and insert “under paragraph 2(2)(a) of”

Member’s explanatory statement

This amendment is consequential on the Minister’s other amendment to Schedule 14

109: Schedule 14, page 236, line 7, leave out sub-paragraphs (3) to (5) and insert—

“(3) A statutory instrument containing regulations made by the Secretary of State under paragraph 2(2)(b) of this Schedule or containing regulations made by the Secretary of State or the Treasury under paragraph 4 or 6 of this Schedule must be laid before Parliament as soon as reasonably practicable after being made. (4) Sub-paragraph (3) does not apply if a draft of the statutory instrument has been laid before and approved by a resolution of each House of Parliament.(5) Regulations contained in a statutory instrument laid before Parliament by virtue of sub-paragraph (3) cease to have effect at the end of the period of 40 days beginning with the day on which the instrument is made, unless during that period the instrument is approved by a resolution of each House of Parliament.(6) In calculating the period of 40 days, no account is to be taken of any time during which—(a) Parliament is dissolved or prorogued, or(b) both Houses of Parliament are adjourned for more that 4 days.(7) Where regulations cease to have effect as a result of sub-paragraph (5) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.7A_(1) Regulations made by the Scottish Ministers under paragraph 2(2)(a) of this Schedule are subject to the negative procedure (see section 28 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10)).(2) Regulations made by the Scottish Ministers under paragraph 2(2)(b), 4 or 6 of this Schedule must be laid before the Scottish Parliament as soon as reasonably practicable after being made.(3) Sub-paragraph (2) does not apply if the regulations have been subject to the affirmative procedure (see section 29 of the Interpretation and Legislative Reform (Scotland) Act 2010).(4) Regulations laid before the Scottish Parliament by virtue of sub- paragraph (2) cease to have effect at the end of the period of 40 days beginning with the day on which they are made, unless during that period the regulations are approved by a resolution of the Scottish Parliament.(5) In calculating the period of 40 days, no account is to be taken of any time during which the Scottish Parliament is—(a) dissolved, or(b) in recess for more than 4 days.(6) Where regulations cease to have effect as a result of sub-paragraph (4) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.(7) Section 30 of the Interpretation and Legislative Reform (Scotland) Act 2010 does not apply in relation to regulations to which sub-paragraph (2) applies.7B_(1) Regulations made by the Department for the Economy in Northern Ireland under paragraph 2(2)(a) of this Schedule are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).(2) Regulations made by the Department for the Economy in Northern Ireland under paragraph 2(2)(b), 4 or 6 of this Schedule must be laid before the Assembly as soon as reasonably practicable after being made. (3) Sub-paragraph (2) does not apply if a draft of the regulations has been laid before, and approved by a resolution of, the Assembly. (4) Section 41(3) of the Interpretation Act (Northern Ireland) 1954 applies for the purposes of sub-paragraph (3) in relation to the laying of a draft as it applies in relation to the laying of a statutory document under an enactment.(5) Regulations laid before the Assembly by virtue of sub-paragraph (2) cease to have effect at the end of the period of 40 days beginning with the day on which the regulations are made, unless during that period the regulations are approved by a resolution of the Assembly.(6) In calculating the period of 40 days, no account is to be taken of any time during which the Assembly is—(a) dissolved,(b) in recess for more than 4 days, or(c) adjourned for more than 6 days.(7) Where regulations cease to have effect as a result of sub-paragraph (5) that does not—(a) affect anything previously done under or by virtue of the regulations, or(b) prevent the making of new regulations.(8) A power of the Department for the Economy in Northern Ireland to make regulations under this Schedule is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).(9) In this paragraph “the Assembly” means the Northern Ireland Assembly.”Member’s explanatory statement

This amendment changes Schedule 14 so that regulations under paragraph 2(2)(b), 4 or 6 of the Schedule that could formerly have been made by a negative procedure will be subject to a made affirmative procedure (or an affirmative procedure).

Amendments 108 and 109 agreed.

Corporate Insolvency and Governance Bill

(Committee: 1st sitting (Hansard))

Committee (1st Day)

Relevant document: 14th Report from the Delegated Powers Committee

Baroness Henig Portrait The Deputy Chairman of Committees (Baroness Henig) (Lab)
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My Lords, a limited number of Members are here in the Chamber, respecting social distancing, and if the capacity of the Chamber is exceeded, I will immediately adjourn the House. Other Members will participate remotely, but all Members will be treated equally, wherever they are. For Members participating remotely, microphones will unmute shortly before they are to speak—please accept any on-screen prompt to unmute. Microphones will be muted after each speech. I ask noble Lords to be patient if there are any short delays as we switch between physical and remote participants. I should remind the House that our normal courtesies in debate still very much apply in this new hybrid way of working.

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 expressed an interest in speaking on each group. I will call Members to speak in the order 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.

During the debate on each group, I will invite Members, including Members in the Chamber, to email the clerk if they wish to speak after the Minister. I will call Members to speak in order of request and will call the Minister to reply each time. Debate will take place on the lead amendment in each group only. The groupings are binding and it will not be possible to de-group an amendment for separate debate. A Member intending to press an amendment already debated to a Division should give notice in the debate. Leave should 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.

Clause 1: Moratoriums in Great Britain

Amendment 1

Moved by

1: Clause 1, page 3, line 18, leave out “person” and insert “insolvency practitioner, or has an appropriate qualification from a UK chartered accountancy body”

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara (Lab) [V]
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My Lords, in moving Amendment 1, I shall speak also to Amendments 2, 5, 6, 10 and 14, which are either in my name or in the name of my noble friend Lord Lennie. As I am afraid is true perhaps of all our proceedings this afternoon, this is quite a wide group. A lot of issues are raised, and I hope that we will have appropriate time to ensure that the points made are recorded and responded to by the Minister.

Amendment 1 concerns the question of whether the new post of monitor should have an appropriate set of regulations and, if so, what they should be. The amendment makes a rather narrow proposal for qualifications from a UK chartered accountancy body. As a member of the ACCA, I should of course declare an interest in this discussion. I would have expected there to be a broad interpretation of this issue, and this is just a probing amendment to try to get a response on the record. It raises the wider question of whether the persons likely to be involved in acting as monitors should be restricted to those with an accountancy background, because in many cases we are trying to develop a new approach to company rescue and relaunch in this country. It does of course happen in many ways, but the Bill perhaps provides a focus for a new mission on this. Of course, over the years, those who were involved in this have grown up from a number of different backgrounds, including lawyers and other professionals, as well as accountants, and we should be alert to that.

A wider question is raised. There is very little in the Bill about what the Government have in mind for those who will occupy this key role. Maybe the Minister can put a little more shade into the detail of this. Perhaps he could offer that notes might be published at some future date relating to the post of monitor, or regulatory provisions put into the Bill in relation to points that might be raised on later amendments. Those are all important considerations. We do not want to hold back the Bill because it is important that we get it in play but, if this initiative to provide breathing space and time for companies to rethink what they are doing is to work in practice, we will need people with real additional skills to those that are available more generally within the IP profession at the moment. We will need to encourage them to develop those skills, bring forward their version of what we find works, and build on those.

Amendment 1 is perhaps rather narrow in its application when seen in print, but there is a broader resonance behind it, and I hope the Minister will be able to respond to that in kind. Amendment 2, which I will speak briefly to, is a question about independence of the postholder of the position of monitor. It was raised on Second Reading and in the other place. We assume that there is no question but that those appointed to the post of monitor will be truly independent and able to exercise judgment in relation to the future of the companies with which they are involved. But again the Bill is silent on this, and perhaps I can again ask the Minister to speculate on how he might bridge the gap there in relation to guidance or regulation itself if required.

Amendment 5, in the name of my noble friend Lord Lennie, touches on an issue that will come up in a number of groups today: the role of the employees involved in companies which might be considering the use of the breathing space, the consideration of a reorganisational restructuring or, if it goes down that route, going into administration to preserve the assets held within a company for the creditors who are due to be repaid. In the latter case where we go into formal procedures, the law already is very solid on the role that must be played by employee representatives of particular trade unions, and particular aspects of consultation are brought into it. But the Bill is silent on what would happen in relation to these new initiatives about breathing space and the idea of trying to restructure in the time provided for it.

Could the Minister mention, when he comes to respond, whether he is minded to think further about these issues? It may not be necessary to do it on this Bill, but I think it would give comfort to those who have this amendment and other amendments to be discussed later this afternoon if he could say something at this stage about the Government’s overall position towards union employee representatives in relation to ongoing companies’ works. Any of us who have worked in business know that a tremendous role is played by employee representatives in the business of companies. Anybody who denies that is either unsighted or is just being provocative. In a good company, it is as natural as the air we breathe to consult and discuss issues of substance in relationships within the company with your employees. If you do not do that, you will suffer. It therefore makes no sense to arbitrarily dismiss that as a possible way forward in this legislation. I look forward to hearing the Government’s response on that. Only good can come from any movement in this area.

Amendment 6 concerns an issue that was also raised at Second Reading and is worthy of further consideration. The Bill correctly places a limit on the aspirations for recovery in relation to the monitor and their work by suggesting that they must have in mind the idea that a company rescue would be a possibility. However, this amendment asks: does that not make that a little tight; and would it not be better to use a different word, such as “could”? If it is only a requirement for the monitor to have regard to the fact that there could be a rescue, that seems to me—and to others, perhaps—a better way of opening up the possibilities for how and in what form a company might be rescued. If we are in the business of making sure that companies carry on and saving them, we should not kill them off too early. It would be wrong if the Bill, perhaps through infelicitous phrasing, gave too much away at this early stage of the process. “Could” would be a better word. I look forward to the Minister’s response.

Amendment 10 deals with the timescales for the legislation, as do many other amendments on our agenda that will come later. This amendment is narrow in relation to the timings required by companies to get themselves through the first early stage of consideration on whether a rescue is possible and, if so, how it might be managed. At the moment, 20 working days is provided although there is a possibility for extension. We pose the question, in a probing way, as to whether 30 days may be better. It would be good to get the Government’s response to that. Perhaps we can return to this issue later.

Amendment 14, which is the last one that I will speak to at this point, returns to the rather more complex issue of how long a company or, in practice perhaps, a monitor has to review the state of play in relation to the company, identify its creditor problems, talk to those who are involved in the whole process of the company—including employees, as will often happen —and think through the implications for pensions and other internal commitments. The timing is deliberately left open but when we raised this at Second Reading and the Minister read it out, it seemed that there was effectively no stop on the time limit that could be applied to companies seeking this form of redress in relation to the moratorium. If it is the case that the moratorium could be extended permanently and that that is meant here, perhaps how that happens in practice should be more explicit than simply having to work it out from what the Minister says. This issue was also raised in reports from the Delegated Powers Committee and the Constitution Committee, so we may well come back to it later. Again, it would be helpful if the Minister could clarify this when he responds.

There are a number of other amendments in this group, which we will need to debate. In particular, I want to focus on Amendments 83, 84 and 85 in the names of my noble friends Lord Hendy, Lord Hain and Lord Monks. They are in themselves important but they are also important for the long-term future of the way in which the Government, and indeed the country, deal with company organisation in relation to the points that I have already made, for example about the treatment of workers. I hope that we will have some good debate and discussion on these amendments for future work if we do not see them passed today.

I beg to move.

Baroness Altmann Portrait Baroness Altmann (Con) [V]
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My Lords, I have added my name to a number of amendments in this group. If I may, I will leave it to those who formally move the amendments to expand on their thinking and I will give just an overview, in the interests of time.

I support the Bill’s aims. Clearly, it is vital to protect as many jobs and businesses as possible during the pandemic, as the noble Lord, Lord Leigh, rightly says, but due to the speed with which the Bill was introduced, some of the novel ways in which individuals are introduced into the potential insolvency process or the corporate rescue process may need further strengthening. Indeed, further checks and limitations to reduce the risk of the moratorium being abused and more explicit duties on the monitor to ensure their independence are needed. The Bill does not impose any statutory requirement for the monitor to be independent of the company directors, who appoint the monitor.

It is of particular concern that creditors have no say in the selection, appointment or removal of the monitor, and that the monitor does not owe creditors any express statutory duties. Therefore, a number of these amendments aim to strengthen the safeguards around the appointment and duties of the monitor. For example: Amendment 2 explicitly states that there needs to be independence; Amendment 25, in the name of the noble Baroness, Lady Bowles, says that payments should not be accelerated and new fees should not be added during the moratorium; Amendment 28, in the name of the noble Lord, Lord Palmer of Childs Hill, and Amendment 37 provide for periodic review of the moratorium; and Amendment 42, in the name of the noble Lord, Lord Hodgson of Astley Abbotts, would require the monitor to detail and explain relationships to any directors or liquidator. We need a statement of the independence from the company of the monitor, who is so crucial during this important moratorium period. One does not want to see the measures in the Bill being used as an opportunity to fast-track insolvency to the benefit of certain parties at the expense of others.

In the interests of time, I feel that that is all I need to say at this stage. I thank my noble friend the Minister for all the work that has gone into this important Bill.

Lord Mendelsohn Portrait Lord Mendelsohn (Lab) [V]
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My Lords, I will speak to Amendment 3 and make some general observations.

Amendment 3 relates to the recognition of the appropriate debts of creditors. In particular, one must be concerned about smaller businesses, which may well suffer as creditors and unsecured creditors from such a transaction. While these may be smaller crumbs of comfort than the overall Bill, it is absolutely right that businesses that fall into this process properly recognise the full extent of the debts that they owe so that statutory interest is recognised as a cost and a consequence for them. It is right that these debts should be appreciated and recognised in the statements that the monitors have to put forward. I hope that the Minister will consider the Government introducing this measure, not just to make sure of the full amount that is owed to a company because of late payment and late settlement of their debts but also because it sends an important cultural message.

I support some of the measures introduced by other Members of this House. In particular, it is very important that we probe the Minister for much more detail about the role of the monitor. We must look at the qualifications, skills and independence of the people who will occupy those posts, as well as the costs.

Here I am concerned that the impact assessment itself shows that very little work has been done on the likely operating mechanisms of the Bill. The figures that it uses are from a study in 2010, and I hasten to add that in the last decade we have seen a significant increase in the rise of professional service costs, and the costs in the impact assessment do not fully recognise those.

We do not have a full appreciation of what skills are required for this, and I strongly support the notions expressed by my noble friend Lord Stevenson that there are many others who we might want to introduce into this area who have appropriate skills that are recognised by professional accountancy bodies. Many people who have been involved in the turnaround industry would do very well at this task—much better than qualified insolvency practitioners. I would be interested to hear the Minister’s comments as to how the Government will look at the appropriate skills that are required for someone to successfully be able to carry out the role of a monitor, including the measures to try to ensure the proper independence of the monitor, that they have a real view for the potential future success of the business and that they are not beholden to any particular class, but particularly those who are connected parties.

However, I strongly support the amendment, which addresses the difficult question about the time for a monitor. This process should be given an extended period, and it would be worth while in the first instance extending the first period to ensure that we do not go through a quick cycle to make sure that it is there.

On the amendment in the name of the noble Lord, Lord Leigh, while many people will consider this to be a difference without a distinction, he will be able to express the nature of his interpretation.

It is important also to probe the Minister on the fact that we have seen that many businesses, particularly at latter stages, like to structure themselves in such a way that they can move a variety of the different connected parts of the business through different processes, and will disaggregate the overall enterprise and take individual companies to be able to crush suppliers or deal with the dispensing of staff during that period. It is important that the application of a company’s business helps us ensure that companies do not act inappropriately and section off parts of their businesses, as we saw just a couple of days after Second Reading, with one of the most disgraceful pre-packs of all time. A connected part of a business was crushed in order to eliminate the full suppliers, and it isolated a particular business rather than the whole enterprise. It will be important for the Minister to give us some reassurance that the definition of a company does not allow businesses to game the system, or allow some form of recourse or interpretation that makes that possible.

Lord Hope of Craighead Portrait Lord Hope of Craighead (CB) [V]
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My Lords, I will speak to Amendment 4 on the Marshalled List, which is in my name.

The context for what I propose is to be found in new Section A8, which requires the monitor, as soon as reasonably practicable after the moratorium comes into force, to notify every creditor of the company of whose claim he is aware, giving notice of when the moratorium came into force and when it will come to an end. The importance of this duty is highlighted by the fact that the monitor commits an offence if he fails without a reasonable excuse to comply with it. That is as it should be, as the creditors need to know about the moratorium as soon as possible, because it has such an obvious effect on them and their interests. Their right to recover the debt is effectively frozen for the duration of the moratorium. That may have significant adverse effects, which may need to be provided for urgently to avoid the creditors’ financial embarrassment. But the monitor’s duty to notify the creditors extends only to those of whose claims he is aware. There is no suggestion anywhere in the Bill, so far as I can see, that the monitor is under a duty to make inquiries. Therefore, the provision, as it stands, is a rather weak protection for the creditors, whose interests will inevitably be disadvantaged by the moratorium, against which they are being given no right to object.

In that context, I am proposing an addition to the list of relevant documents in new Section A6. These are the documents that must accompany the directors’ application for a moratorium. The amendment seeks to add to the definition of “the relevant documents” in Section A6(1) a list by the directors of all known creditors of the company. The aim of the amendment is to ensure that the monitor has access to this information as soon as possible. That is because he really does need it, if the performance of his duty to notify is to be effective for the protection of the creditors. The directors are, of course, in a much better position to say who the creditors are than the monitor, who is a newcomer to its affairs. Adding this list to the definition will greatly strengthen the effectiveness of the duty to notify in new Section A8. It will enable the performance by the monitor of his duty to notify to be much more effectively scrutinised, and enforced, if necessary, than it would be if all that can be done is to rely on what he happens to be “aware” of.

I should explain that the need for a provision of this kind was drawn to my attention by the Law Society of England and Wales. The wording of it has its support, and I invite the Minister to look at it very carefully. I appreciate, of course, the pressure the Minister is under to get the Bill through as soon as possible, and that the time he may need to get clearance for any amendments to it is also very limited. I would therefore be content if the Minister would give an assurance that he will indeed look at this matter and at the gap in the creditors’ protection that it exposes, perhaps with a view to an amendment by regulation under the power provided by Clause 18(1)(a), as R3 suggests, once the way these measures are working out in practice has been tested in the marketplace.

Baroness Henig Portrait The Deputy Chairman of Committees
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I understand that the noble Lord, Lord Lennie, does not wish to speak, so I call the noble Lord, Lord Hodgson of Astley Abbotts.

Lord Hodgson of Astley Abbotts Portrait Lord Hodgson of Astley Abbotts (Con)
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My Lords, I have Amendments 8, 21 and 42 in this group. I remind your Lordships’ House of my entry in the register of interests.

The amendments are of a practical nature and are drawn from my experience as an investor in and director of private equity funds and small companies over many years. Before I turn to them, I will just repeat to the Minister how unsatisfactory is the way the Bill is being dealt with. We are mixing coronavirus amendments —which we all understand have to happen quickly—with permanent changes to our insolvency law, and this is a rushed job that may well rebound to cause more trouble for the Government than they like. The reason I want to repeat the points that I made at Second Reading is that since that debate on a Bill littered with Henry VIII clauses took place, we have had a report from the Delegated Powers and Regulatory Reform Committee. I do not think I have ever read a report that is quite so critical of a Bill. I have to say to my noble friend that if Members of your Lordships’ House are inclined to push amendments to restrict those Henry VIII clauses today or at future date, I shall feel obliged to support them, because we have a very bad mix here.

The purpose of Amendment 8 is to facilitate and encourage the use of moratoriums. Events leading to a company’s collapse proceed at two speeds. It first happens at a slow speed, while the directors think, hope and pray that something will turn up—that a contract will be won, some money will come in, or an investor will appear. Inevitably, when Mr Micawber does not turn up, things have to move very quickly indeed. Then, if they decide to appoint a monitor, the time for him to make his decision is very limited indeed. As we know from the wording of the Bill, he has to make a statement that it is likely that a moratorium would result in the rescue of the company as a going concern.

The monitor will have to do this in a few days. If a major supplier has to be paid or, most importantly, if a payroll run has to take place at the end of the month, there is no time for delay. He has a reputational risk in going out on a branch on his own; inevitably, monitors will not want to be known as having a lot of a lot of horses shot under them. So my amendment is to suggest that his job, his role and his readiness to take on this particular company would be much enhanced if he was entitled to rely on information provided by the company, which has the bulk of information about the case in question.

It is not a power or entitlement that can be exercised without care—the proposed wording is

“unless the monitor has reason to doubt its accuracy.”

For these purposes, you can look for the information; you must look at it critically but you may use it. If we do not pass an amendment like this, more monitors will conclude, “Well it’s sort of on the margin and I’ve got to make a judgment off my own back”, and they will decline; that would not help the Government’s central case.

Amendment 21 is of a rather more technical nature; it is intended to ensure that banks and financial institutions cannot game the system. I am very grateful to the noble Baroness, Lady Bowles, for her support for this amendment. As Members of your Lordships’ House are aware, the moratorium is intended to provide a payment holiday for debtors in respect of pre-moratorium liabilities and those that fall due during the moratorium period. But certain prescribed liabilities falling due during the moratorium, including

“debts or other liabilities arising under a contract or other instrument involving financial services”,

are not subject to a payment holiday.

With the leave of the House, I will explain how this might work. Let us say that the company has a £10 million term facility from a bank and it has defaulted on the first £1 million; we know that it will be under stress because that is why we are thinking about the moratorium. Prior to the entry into the moratorium, the sum of £1 million which fell due, with interest payable, will be a pre-moratorium liability and, as such, it will qualify for protection. But that very event of having a demand to repay £1 million will be an event of default under the terms of nearly every standard bank facility. That means that the bank can then ask for the £9 million—the balance of the loan—and, since that is happening under a financial services contract during the moratorium period, there is no protection.

So the bank can use the trigger of an early default to get round the purpose and sense of what the moratorium is all about. This not only means that the company will collapse but that, almost certainly, the monitor will not take on the job in the first place; the monitor will be nervous that, if a bank uses this as a tool or lever, the chances of there being a going concern at the end will be much reduced. Amendment 21 is designed to prevent the banks or financial institutions using those sorts of levers to advantage their position.

Finally, on the “Conflicts of interest” amendment, the noble Lord, Lord Stevenson, raised this issue, as did my noble friend Lady Altmann, who was kind enough to put her name to my amendment. This is best explained by an old story. The company is in trouble. The bank decides that it is going to put in a firm of reporting accountants. The firm of reporting accountants arrives and does its work. On a Friday evening, as the work is finished, the chief executive’s office door swings open, the head of the investigating firm walks in and says, “Thank you very much. We’re off now. The report’s gone to the bank. Have a good weekend, and I’ll see you on Monday”. The chief executive says, “See you on Monday? I thought you had finished your work.” “Oh yes, we have,” says the head of the investigating firm, “but you’re going to be put into receivership, and I’m going to be the receiver.” The chief executive wonders, “Are those two issues connected at all?”

People do not bite the hand that feeds them; it is banks, financial institutions and other major creditors that do most of the feeding for the insolvency world. This amendment is simply designed to ensure that any prospective monitor looks at himself or herself in the mirror before taking on the job to ensure that he or she is reasonably free from conflicts of interest.

Lord McNicol of West Kilbride Portrait The Deputy Chairman of Committees (Lord McNicol of West Kilbride) (Lab)
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Lord Hendy? No? Then I call the noble Baroness, Lady Kramer. We will then try to get the noble Lord, Lord Hendy.

Baroness Kramer Portrait Baroness Kramer (LD) [V]
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My Lords, I will speak to Amendment 22 in my name and that of my noble friend Lord Fox. I will also make a few comments on Amendments 25 and 40, to which I have added my name.

Amendment 22 seeks to achieve fairness for small entities which are creditors to a company entering a moratorium. Most small entities are very vulnerable if a major customer fails to pay on time. They do not have the volume of other customers to offset cash-flow problems; even in the good times nearly all of them find it very difficult to borrow from banks to cover cash flow, never mind in a situation where a major customer is entering a moratorium or, potentially, insolvency. So Amendment 22 adds these small entities to a list of priority creditors that are not subject to the moratorium delays. I would point out that the moratorium, while initially about 20 days, could stretch on to a year and beyond, so this is absolutely critical for small suppliers.

The second part of the same amendment—I admit that the language is extremely clumsy—deals with the problem that small entities are often strong-armed by their large customers into accepting excessively long payment terms compared to those that a large supplier would insist on. I spoke at Second Reading about the failure of many large companies to make prompt payment to small suppliers; the numbers are quite shocking. What I am attempting to do here is to right this underlying wrong by deeming that any payment due to any small supplier be treated as if, from the first day, it was an agreement for payment within 30 days, regardless of what is actually down on the piece of paper. In a sense, I am trying to move small companies on to an equal footing with the large suppliers to the company that is entering the moratorium, so it is two different ways. I hope that the Minister in replying will talk about this problem for small suppliers; it is very different in character to the problems for a big supplier who has many other customers, very good banking relationships and, potentially, access to the capital markets.

As I said, I have also added my name to Amendments 25 and 40. The noble Baroness, Lady Altmann, made the key points here, and I just want to reinforce them slightly. Indeed, the noble Lord, Lord Hodgson, in describing the behaviour of banks when speaking to Amendment 21, was in a sense also describing the kind of behaviour that one could anticipate that is relevant to Amendments 25 and 40.

Banks understand very well how to improve their position in a moratorium; it is quite possible to gain advantage by shaping the terms that are attached to new borrowings that take place from a bank during the moratorium—those are almost inevitable if a company is to keep functioning—and potentially to build into those new arrangements a mechanism that affects the acceleration of other payments and that levies fees and interest rates that are essentially well above market. This is, in a sense, another way of drawing more money out of the company ahead of other players. It is a way of gaming the system. I note that R3, the insolvency trade body, has written in support of the purpose of these amendments, so this is not paranoia on my part. I am a former banker and I know very well how I would have been encouraged to handle a situation like this; it is a much more broadly recognised problem. Again, I hope that we will hear from the Minister on this issue.

Lord McNicol of West Kilbride Portrait The Deputy Chairman of Committees
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I now call the noble Lord, Lord Hendy.

Lord Hendy Portrait Lord Hendy (Lab) [V]
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My Lords, in speaking to Amendments 83 to 86, I will begin with an introduction and then make two points, which will also shorten my contributions to amendments in later groups. The Government rightly foresee that, in consequence of the pandemic, many companies will run into or are already in financial difficulty. Companies become insolvent all the time; we all know the fates of Woolworths, Bernard Matthews, Mothercare, Thomas Cook, Wrightbus, Jamie’s Italian, Carillion, Flybe and many more. There were 17,196 company insolvencies in 2019 alone, but Covid-19 will make it worse.

Hundreds of thousands of workers are directly engaged by the companies in danger. There are hundreds of thousands more in their supply chains. Many will find themselves among the 2 million unemployed workers estimated by the Office for Budget Responsibility to join the 1.36 million unemployed before lockdown—a total of 3.36 million unemployed: a catastrophe. Not only are livelihoods at risk, but the terms and conditions, and the pensions, of those whose jobs are saved are also at risk. We have already seen this in companies that are not insolvent: pay cuts of 10% at the Daily Mirror; of 20% at BAM Construct; of 20% at Ryanair, with a loss of possibly 3,000 jobs; and up to 60% at British Airways, with 12,000 jobs to go.

There can be no doubt that the opportunities offered by the Bill, though generally welcome, will be utilised, as in Chapter 11 proceedings in the USA, to scrap jobs, cut pay and dump pension liabilities. I understand that the Minister has recognised the risk to pensions, yet the remarkable fact remains—and this is the first of my two points—that, in the 234 pages of the Bill, the workers, even those directly engaged, are not mentioned. They are at risk, but not protected.

Most strikingly, the Bill provides no requirement for workers and their representatives to be involved in the decisions that follow the recognition that a company is in financial difficulty and the consequences of such decisions—decisions that are profoundly likely to affect their futures. In the other place, it was said that, in court approval for restructures, the court will have regard to the workers and pensioners in its duty to ensure that the outcome is just and equitable. That will not wash. There is no duty to have regard to the interests of workers and pensioners, and no provision requiring workers or pensioners to be represented in or heard by the court.

It is true that Section 172(1)(b) of the Companies Act provides that among the considerations that directors must take into account are the interests of the employees. But the directors are not obliged to ask them for their views or discuss with them the possible consequences of an application under the Bill. Still less is there any requirement to bargain collectively over these matters. Directors commonly ignore the interests of workers when a company is in financial difficulty. Often, the workers first learn that the company has gone into liquidation on the TV, well after all key decisions have been taken—for example, at Carillion, or Flybe earlier this year.

Section 188 of the Trade Union and Labour Relations (Consolidation) Act requires consultation before redundancy. We know that too often, that does not happen, even where administrators have been appointed. It is often cheaper to liquidate the company than to keep it going while consultation takes place. In the administration of Woolworths, £67.8 million was paid in compensation for failure to consult. For Comet, it was £26 million. But the companies, directors and administrators that choose to break the law by not consulting do not pay. Where there are insufficient funds, the burden falls on the taxpayer, under Part XI of the Employment Rights Act, by which the National Insurance Fund pays—capped at £538 a week—up to eight weeks’ unpaid wages, wages in lieu of statutory notice, holiday pay and basic awards for unfair dismissal. Why does the taxpayer pay? Insolvency law distributes the risk of economic failure in a grossly unfair manner.

Turning to my second point, the secured creditors—and much capital in companies is in the form of secured loans, rather than shares—are at the head of the queue. True, Schedule 6 to the Insolvency Act confers preferred creditor status on an employee for a maximum of £800 in unpaid wages, holiday pay entitlements and unpaid pension contributions, but their claims are often much more than this. Preferred creditor status sounds secure, but even the limited amounts protected by it rank behind all the secured creditors. After they are paid, there is often not enough for the preferred creditors.

In the Bernard Matthews case, the pension fund recovered next to nothing, while the secured creditors were paid in full. Debts owed to workers beyond those covered as preferred creditors rank with all other unsecured creditors. With the company in financial difficulty by definition, it is likely there will not be enough for them. These protections, little as they are, apply to employees only. Limb (b) workers, zero-hours workers and casuals employed by the day, hour or week will all have their employment lawfully terminated before liquidation occurs, as, likewise, will self-employed workers and those working through personal companies.

What is required, therefore, is to make the benefits of the Bill contingent on the company fulfilling its obligations to those who have supplied their labour to keep it going—the workers. Thus, our Amendments 83 to 86 provide that a company seeking a moratorium has paid up to date all national insurance tax and pension payments owed in respect of workers, all remuneration owed to the workers, including the obligation to pay equal pay for work of equal value, and has published statutorily required gender pay gap disclosure. This effectively gives absolute priority to the remuneration owed to workers.

This is a proper distribution of risk. The secured creditors—banks, private equity, hedge funds and so on—are professional risk-takers, who have spread their risks in a diversified portfolio. If they take a hit, they can usually make it up from their other investments. The worker is at the other end of the spectrum: typically, she has one job, one investment, only. As her life unfolds, her fund of usable labour diminishes. If she takes a hit, it may be impossible to regain her earning capacity or restore her pension pot ever again. Those facts are magnified by the catastrophic unemployment consequential on the pandemic. She may never work again, or for a significantly lower income only. She needs protection. These amendments go some way to provide it.

Lord Monks Portrait Lord Monks (Lab) [V]
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My Lords, I do not wish to speak at this stage.

Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con) [V]
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I will speak to Amendments 12, 13, 17, 18, 30 and 31, all of which are mine. Essentially, they make the same point, but I had to table several amendments to the Bill to cover it. The point is to allow an extension of the moratorium where the rescue of the business, as opposed to the company, is likely. I draw the attention of your Lordship’s House to my register of interests, which includes being deputy chairman of finnCap, a stockbroker, and senior partner of Cavendish Corporate Finance, which specialises in selling businesses. Unusually, I am speaking to an area in which I have some limited expertise, particularly in selling businesses.

I add to the remarks of the noble Lord, Lord Hendy, that private equity firms, banks and others do spread their risk, and insolvency is a devastating experience for the owner of a business, who may have spent years building it up and invested all their family wealth into it. They too need as much protection as possible.

At the moment, there is constant reference throughout the Bill to “the company”, but frequently, if not in the vast majority of cases, the actual limited company, or plc company, will not survive—there is simply no possibility—and there will be no return to the shareholders or equity at all. However, the actual business itself might well survive. For example, in the retail sector, many businesses trade from shops. The companies that have the leases with the landlords will disappear, but the businesses trading in those shops will, hopefully, carry on. Typically, they may be sold to a third party but, to do that, the directors or monitor will need time to negotiate a transaction that preserves the business and the jobs. I thank the noble Lord, Lord Mendelsohn, for inviting me to amplify the amendments, but what they are saying is pretty simple. In many instances, the business that is owned by the company is viable and likely to carry on, but there is no chance of the company so doing. The amendments in my name seek to address this.

Amendments 12 and 13 refer to the situation where a director wants to extend the moratorium with creditor consent, and Amendments 17 and 18 to where the directors apply to the courts. I share the concern of other noble Lords that the courts are going to be very busy as a result of the Bill, and I hope that sufficient resources will be given to them. Again, where the directors apply to the courts, the courts will see that the business may well carry on, even if the company is not able so to do. This will then allow the courts to instruct the directors to carry on the moratorium.

Amendments 30 and 31 refer to the circumstances where the monitor is in charge. I will make a few comments about the monitor in a minute. The Bill states that

“the moratorium is no longer likely to result in the rescue of the company as a going concern”.

This ignores the possibility that the business might well be rescued as a going concern. It is particularly important that the monitor is a person who is able to see that viability and implement it. It would be tragic if the moratorium ends for all the wrong reasons.

I support the noble Lords, Lord Stevenson and Lord Hodgson of Astley Abbotts, in emphasising the importance of who the monitor is. The noble Lord, Lord Stevenson, quite rightly made the point that it need not necessarily be a chartered accountant or an insolvency practitioner. It would be great if the legislation allowed the flexibility for a turnaround professional to be appointed as a monitor, albeit with the appropriate protections, as they really do know what they are talking about in enabling a business to carry on afterwards. The story from the noble Lord, Lord Hodgson, about the investigating accountants telling the directors that they would be back on Monday to carry out receivership is chillingly true; I have seen it in practice. I have also seen much better examples, where the investigating accountants have been told by the bank that under no circumstances will they be appointed as the receiver, or in our case monitor. So they are truly independent and are working to try to ensure that the business carries on, as opposed investigative accountants being appointed, who know that they might be appointed as the receiver, with subsequent huge professional fees.

It is vital that we try to ensure that the monitor is independent not just at the time of appointment, as these amendments suggest, but subsequently, and is not appointed as a receiver without proper investigation that their actions have been in the interests of the business. I will not amplify this point any more but will simply quote from the Insolvency Practitioners Association, which has said:

“Expanding the definition”,

as I have suggested,

“will enable monitors to more broadly assist businesses, working with their owners, stakeholders and directors to give them a greater opportunity to survive the economic strictures of Covid-19 responses”—

which is the purpose of the Bill. Without the amendments I have tabled, the Bill will be heavily emasculated.

Baroness Meacher Portrait Baroness Meacher (CB) [V]
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My Lords, I thank the noble Lord, Lord Vaux, for his detailed amendment to Clause 12, and support it most strongly. I apologise to the Committee; I must be responsible for the fact that I am listed ahead of the noble Lord, Lord Vaux, who will move his amendment, but I hope that my brief comments will nevertheless make sense. As it stands, Clause 12 interferes in an unacceptable way in the commercial activities between companies. By restricting the ability of suppliers of goods and services to terminate contracts with a company that has entered a relevant insolvency procedure, the clause puts the viability of supplier companies in jeopardy, particularly if they are small, as other noble Lords have mentioned, or if their client company represents a substantial percentage of their sales.

Along with the noble Lord, Lord Vaux, I am particularly concerned about the provision in Clause 12 to allow the Secretary of State to remove exclusions in Schedule 4ZZA using subordinate legislation. As the Bill stands, small companies are excluded from the restrictions on supplier companies, so they can, at the moment, terminate their contract to supply goods and services to a client company when it enters relevant insolvency procedures. This is surely absolutely essential if we are to encourage new entrants to the supply sector and if we are not to threaten the future of small companies. As I understand it, the amendment in the name of the noble Lord, Lord Vaux, would permanently protect small companies from the effects of Clause 12.

Another control over supplier companies is the restriction preventing them from requiring payment of outstanding charges as a condition of continued supply. Such a restriction surely also risks the financial viability of the supplier. I question the morality of a Government interfering in the marketplace to protect one company, apparently at the expense of others. Will the Minister explain how the Government justify the different treatment of companies involved in insolvency proceedings and their suppliers? Why do the Government appear unconcerned about the future of supplier companies? I agree with the noble Lord, Lord Hodgson, that a major problem with the Bill is that it combines understandable emergency measures to deal with the Covid crisis with permanent Henry VIII powers. This has been the matter of most concern to the Delegated Powers Committee, of which I am a member.

In conclusion, I hope that the Minister will accept the amendment in the name of the noble Lord, Lord Vaux. If not, I hope that the noble Lord will bring it back on Report.

Baroness Bowles of Berkhamsted Portrait Baroness Bowles of Berkhamsted (LD) [V]
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My Lords, I declare my interests in the register as a company director. There are many good amendments in this group that I support, but I will limit my speech to the ones in my name, relating to creditor priorities and to review, and to a couple related to them. The background to Amendments 25 and 40 is the same as that already raised by the noble Lord, Lord Hodgson, and the noble Baroness, Lady Kramer. The position of financial institutions is uniquely privileged in that they will inevitably continue to be involved but they are not bound by the same conditions of moratorium as others who must continue to supply. They are not bound to normal supply terms or the ipso facto clause, and are free to accelerate and increase their demands, achieving elevation to both the amount and priority of their lending.

As well as the issue of priority, enhanced charges and advancement extract funds from the company, which is counterproductive to the very rescue that is the purpose of the moratorium. The effect of both those possibilities would be to leave unsecured creditors and, notably, pension deficits in a worse position in a subsequent insolvency. Put together, the two effects make the price of the moratorium too high, and the financial institution behaviour pattern is compelled to happen.

I do not need to remind the Committee that the operation of banks is not geared towards benevolence. I wish they had that in their articles but they do not; they are geared towards maintaining their own capital and their own profit, which is encouraged by bonuses and regulation. There have been some appalling examples of banks squeezing SMEs, for example as elaborated in the FCA’s report on RBS’s Global Restructuring Group, which this House debated last June. It is clear from that FCA report that there is no desire to interfere in contractual terms.

Further, regulators and HMT contributed to the debt squeeze through pressure on banks concerning capital and the scariness of systemic effects following the financial crisis. What makes anyone think that the forthcoming recession and looming loan losses will set up any different priorities? That is how it works and no matter what supportive declarations are made, it needs legislation to override that model or else it will prevail. There is no way that it is safe to give lenders a win-win, gameable scenario, as the Bill does, because they will feel obliged to exploit it. My Amendment 25 and its companion for Northern Ireland, Amendment 40, aim to prevent the extraction of cash and gaming debt priority by restricting bank and financial creditors from accelerating repayment or increasing charges and interest during the moratorium. This does not prevent them participating in a final financing agreement.

A second mechanism that I want to comment on, and which I conclude is best as an addition, is to remove the new super-priority from financial institutions altogether. That can be done either through Amendments 94 and 95, in the name of the noble Baroness, Lady Altmann, which remove the financial instruments from having priority in Schedule 3—where the priority is allocated—or by removing financial institutions from new Section A18, as the noble Baroness, Lady Drake, suggests in amendments allocated to a later group. In fact, I submitted an identical amendment to hers but I was beaten to it and there was no space left to sign it. I also note that Amendment 21, in the name of the noble Lord, Lord Hodgson, addresses the issue in another way by removing from new Section A18, and hence priority, bank debts arising during the moratorium. I signed that amendment because all the measures that could possibly relieve this problem need to be considered. However, it is necessary to go a little further.

The main question is this: how did the balance in the Bill concerning financial institutions come about? Does the Minister recognise the seriousness of the problem and is there a willingness to find a solution? We will return to the pensions aspect in group 3 but, left unchanged, the moratorium may do more harm than good overall. That is especially the case for a long moratorium. For that reason, I am not sure that I agree with changing “more than one” regarding extensions to “multiple times without limit”. If the original drafting carries with it a slight suggestion of a more limited time, in my book that is probably better.

Turning more briefly to other priority matters, the priority within new Section A18 can be adjusted by regulation, which I do not like. But in Schedule 3, at the top of page 132, moratorium debts from ongoing supply are given a ranking above wages. I am not too keen on that as it seems to me that employees are engaged in ongoing supply of their labour, so I propose Amendments 98 and 99, which give salary and wages equal top ranking with debts for companies continuing to supply.

My final amendments in this group are Amendments 37 and 44, which would add a review of the operation of the moratorium, including the impact on SMEs and unsecured creditors, and recommendations for legislation to mitigate negative effects. It is clear from the extensive number and scope of delegated powers that this legislation is a work in progress and will need a lot of tweaks. Indeed, despite noble Lords not being the keenest on delegated powers there are places where more are suggested, such as for the monitor, simply because this legislation is not completely worked out. In an ordinary procedure it might well have been possible to iron everything out, but on this emergency schedule it is not. It is not right to bypass Parliament’s helpful scrutiny and, at the very least, there comes a point when it must be considered again in the round, and in the light of experience. The alternative is to sunset and start again, or to do both so that a coherent replacement can give continuity.

Baroness McIntosh of Pickering Portrait Baroness McIntosh of Pickering (Con) [V]
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My Lords, I will address Amendments 1, 2, 4, 8, 28 and 42, as they clarify the role of the monitor and include safeguards on that role while ensuring its independence, which was the theme that I spoke to at Second Reading. We are obliged to the Minister and the department for bringing forward the Bill and we do not seek to delay it, but to strengthen its provisions. The aim of the Bill is clearly to support a company rescue. These amendments would strengthen the role and independence of the monitor. I emphasise the gaps that were addressed at Second Reading.

Amendments 1 and 2 to Clause 1, in the name of the noble Lord, Lord Stevenson, go right to the heart of what the role of the monitor should be. Its role is not to displace the existing management but to monitor company affairs during the moratorium, with the purpose of ensuring that in the view of the monitor the moratorium would be likely to lead to a rescue of the company as a going concern. These amendments, and the others I have referred to, would help the monitor by putting him in a stronger position. We must not detract from the fact that if at any stage during the moratorium the monitor believes that the rescue of the company as a going concern is not likely, the monitor must bring that moratorium to an end. Amendments 1 and 2, along with Amendment 4, in the name of the noble and learned Lord, Lord Hope of Craighead, address these points. Providing this list would actually save time in the long term.

A noble Lord spoke to the amendment about extending the time of the moratorium. Will my noble friend the Minister consider, when he responds to these amendments, whether this would add to or reduce the overall cost of the moratorium?

Amendment 8, together with Amendments 28 and 42 in the names of my noble friend Lord Hodgson and the noble Lord, Lord Palmer, further strengthen the role of the monitor. They could help to facilitate the rescue of the company and reduce the period of the moratorium. What is of interest, and key to these amendments, is that they were identified at Second Reading. I hope that my noble friend might look with approval on these amendments, which seem to meet with the approval of industry and the Law Society for England. There does not seem to be any view within the industry that they would do anything other than enhance the Bill.

I have to confess to having some sympathy with the remarks of my noble friend Lord Hodgson about any referral to, and reliance upon, Henry VIII powers. In my view, it is always preferable to address these issues in the Bill rather than leaving too much leeway to regulations that may be interpreted rather loosely and put more onus on the monitor and the courts in the long term. With those few remarks, I hope that my noble friend the Minister will look favourably on all these amendments.

Lord Palmer of Childs Hill Portrait Lord Palmer of Childs Hill (LD) [V]
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My Lords, my Amendment 28 is on the definition of the role of the monitor. It also ties in with Amendments 1 and 2, referred to by other noble Lords. I declare an interest as a fellow of the Institute of Chartered Accountants.

There is concern among many fellow noble Lords about the lack of supporting information about the monitor. The monitor is an individual, as is a liquidator; in other words, this is not an appointment of a partnership or a limited company. Can the Minister address what the situation could be in the real world outside your Lordships’ Chamber? It seems that a firm of accountants or one of its partners, referred to by the noble Lord, Lord Stevenson, in Amendment 1, could be consultants to a troubled company; at the same time, the firm could be auditors to the same troubled company; now, it can be appointed monitor to the same entity; and, ultimately, if matters go downhill, the same firm or a member of it can be appointed liquidator. Can the Minister reassure the Committee that these fears of cross-contamination are to be addressed? The noble Lord, Lord Hodgson, gave a graphic example, and there are many others which many of us have experienced in business.

Amendment 2, also in the name of the noble Lord, Lord Stevenson, calls for the monitor’s independence from the company. I agree with that, but he or she surely needs also to be independent of the group of companies and the directors, not mentioned in the Bill.

I raised at Second Reading that the monitor—a newish concept—will, unlike a liquidator, not have control of the company’s assets. Can the Minister clarify what research has been done on what insurance cover is available to a monitor, who has no control of the assets?

Amendment 4, in the name of the noble and learned Lord, Lord Hope, calls for a list of creditors, which I heartily support, but this should also include potential debts hiding in the undergrowth, such as the cost of dilapidations. Is the Minister able to address the creditor who is the elephant in the room? I refer to the preferential status to be given under the Finance Act to HMRC for VAT. I understand that the argument is that the company has collected this and needs to hand it over, but is there not a similarity with the supplier of widgets essential to the business who is destined to be below the salt in the list of creditors requested in the amendment?

The noble Lord, Lord Leigh, raised much the same question as I raised at Second Reading, about the actual business as distinct from the company. There seems to be no recognition in the Bill that a business or the components of a business could be rescued. I am not sure that a monitor will help in that process. My noble friend Lady Bowles said that, in effect, the appointment may do more harm than good—it may do more good than harm; I do not know—but, as she so ably said, it is clearly a work in progress and not completely worked out. We look to the Minister and the Government to fill in the blanks before we feel easy about the Bill before us.

Lord Hain Portrait Lord Hain (Lab) [V]
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My Lords, Amendments 83 to 86 are in my name and those of my noble friends Lord Hendy—who spoke so powerfully and compellingly earlier—and Lord Monks. Under them, companies would be excluded from moratoriums for not paying tax, for unpaid remuneration to employees and for breaching sex equality or equal pay.

The amendments are about setting standards with which firms in financial difficulty and seeking state support to stave off insolvency must comply. They aim to ensure that the interests of workers are not sacrificed in a blind rush to shore up businesses facing acute short-term financial pressures.

Too often, company directors and insolvency practitioners fail to consult trade unions and workers’ representatives in potential insolvency situations. By the time they do, it is often too late for unions to explore alternatives to closure and any options for saving jobs and for saving the company concerned. Current UK company law favours creditors, especially secured creditors, with the taxpayer too often stuck with picking up the bill. Witness, for instance, the Financial Assistance Scheme, initiated when I was Secretary of State for Work and Pensions, that helps protect workers’ pension rights when companies go bust leaving company pension schemes underfunded, or when companies in financial distress stay in business but use a “compromise agreement” to avoid meeting their obligations to the firm’s pension scheme. In the mid-2000s, over 140,000 workers lost their pensions when their company went bust and we as a Government acted to protect them, as the noble Baroness, Lady Altmann—a doughty campaigner on their behalf—will recall.

JK Galbraith wrote that neoclassical economics provides only a fugitive role for trade unions and a subservient one for workers, whose place is to be “abundant, redundant and poor.” This Bill could reinforce such roles. For instance, I share the concern expressed by the TUC that companies in insolvency situations might use the provisions on restructuring in the Bill to try to impose worse terms and conditions on their workforce than already exist. It is also important that we guard against bogus self-employed or agency staff not being classed as workers and therefore not entitled to employment rights such as protection from unfair dismissal, sick pay, holidays with pay, pension rights, and maternity and paternity rights.

We went into this crisis with a grossly unfair labour market that treats many key workers shabbily, dismissing them as unskilled and low paid and therefore of little consequence. Yes, UK employment had risen to record heights before the pandemic, but this masked widespread insecurity. The TUC estimates that nearly 4 million people —over 10% of the UK workforce—were in insecure work before the crisis. Nearly a million were struggling to survive on zero-hours contracts and over a million were in temporary work or doing second jobs. We must emerge from the crisis determined to deliver fairness at work.

Our amendments aim to ensure that the Bill contributes to a fairer outcome by providing for all unpaid remuneration and redundancy payments due to every worker, other than directors, to be paid on the date that a compromise agreement or reconstruction arrangement for a company in financial difficulty takes effect. We propose the same for unpaid tax, national insurance and pension payments. Directors of companies commonly hold significant ownership stakes in the companies they manage. It is all too easy for them to focus exclusively on protecting the interests of owners when firms are facing financial distress and to sacrifice the interests of the workforce by sidestepping their responsibilities for pay, redundancy, tax, national insurance and pensions.

Workers are also too often the last to learn what is happening when firms find themselves in financial distress, but they are also the first in the firing line. It is scandalous, for example, that workers sometimes hear that their jobs are in jeopardy only via the television or radio news and not directly from their own managers. It is even worse when they discover that their wages or redundancy pay have been as good as “stolen” by secured creditors, who have first dibs on anything of value remaining in a company facing financial failure. Amendment 84 would ensure that workers could not simply be overlooked or shunted to the back of the queue, by making it a condition for eligibility for a moratorium that companies had no outstanding unpaid wages or redundancy payments obligations.

Amendment 83 provides that on the filing date, any company with such outstanding unpaid tax, national insurance or pension payments in respect of any of its employees, other than directors, would be ineligible for a moratorium. The point here is to prevent firms seeking a moratorium abandoning their responsibilities to their workforce by failing to meet in full their tax, national insurance and pension obligations, leaving the workers in the lurch afterwards. We have seen far too many cases of workers losing out on their pensions when their employer became insolvent or escaped its obligation to pay its debt to the company pension scheme under a compromise agreement. Workers should not have to run the risk of losing some or all of their pensions by employers underfunding the company pension scheme. Employers that try to do so should certainly not be eligible for a moratorium.

Employees do not feature on company balance sheets, even though they are among businesses’ most valuable assets. Amendment 85 would exclude from eligibility for a moratorium any company that is behind on its payments required for equal pay for work of equal value. Sadly, British business has a long and unhappy record of resisting equality initiatives such as equal pay audits. Discrimination on gender grounds is commonplace at work still, despite Tory attempts to suppress the evidence by charging prohibitively high and unfair fees for employment tribunal cases. This amendment seeks to provide countervailing pressure to firms contemplating defaulting on their equal pay obligations while seeking a moratorium.

Amendment 86 would make companies that fail to comply with the information requirements of the Equality Act 2010 and the 2017 gender pay gap information regulations ineligible for a moratorium. Firms in financial difficulty must not be permitted an easy way out of their equal pay responsibilities. Allowing such a loophole would open up the law on insolvency to great abuse. So that we can decide what to do about these issues on Report, I appeal to the Minister to give strong and unequivocal guarantees on the issues we have raised in Amendments 83 to 86.

I will also speak briefly to Amendments 29, 82 and 100 standing in my name alone. On Amendment 29, both an administrator and a monitor are officers of the court. The function of the administrator is primarily to manage the affairs, business and property of the company, as set out at paragraph 59(1) of Schedule B1. The function of the monitor is to monitor the management of the affairs, business and property of the company by the company’s directors, but new Section A37 as drafted appears to limit the scope of the directions applications to the carrying out of the monitor’s functions.

So that directions applications can be as effective a mechanism for resolving questions concerning the management of the affairs, business and property of the company as the mechanism available to administrators to resolve such questions, I propose that new Section A37, which currently states

“The monitor in relation to a moratorium may apply to the court for directions about the carrying out of the monitor’s functions”

should be amended by the addition the additional words

“or the management of the affairs, business and property of the company.”

This would make it possible for a monitor to raise with the court the necessary questions in a similar manner to the power of an administrator to raise such questions. Surely it is right that monitors should be able to question the directors’ management. Moreover, the ability to seek directions relating to such questions will strengthen the court’s oversight of the moratorium process. I hope the Minister will accept this amendment in some form on Report.

On Amendments 82 and 100, there is a strong case for removing the exclusion relating to parties to capital market arrangements, set out in paragraphs 13 to 14 to new Schedule ZA1 in Schedule 1. The same provisions —paragraphs 13 and 14 of new Schedule ZA1 to the Insolvency (Northern Ireland) Order 1989—inserted by Schedule 5 should also be removed. In addition to the moratoria available to companies that have entered administration or eligible small companies that have proposed a company voluntary arrangement, it is important that distressed companies of all sizes have a moratorium available to them under the law so that they can keep trading and benefit from “breathing space” from enforcement action while a restructuring plan under the Bill, a consensual out-of-court restructuring or a scheme of arrangement under Part 26 of the Companies Act 2006 is implemented. It is right that certain types of businesses are excluded from being able to avail themselves of a moratorium under the Bill. However, it does not seem right to have exclusions that turn on the type of financing that a business employs, rather than the type of activity in which that business is engaged, or whether it has been subject in the preceding 12 months, or is subject at the time of seeking a moratorium, to an insolvency procedure or separate moratorium.

Indeed, the effect of the Bill as drafted in paragraphs 13 and 14 is that many large and medium-sized companies, which may employ a range of different types of financing, will be excluded from access to the benefits of the moratorium, with that exclusion extending to all company stakeholders, including creditors as a whole, employees and customers. Paragraphs 13(1)(a) and (2) are particularly restrictive in that they would exclude any company that is party to a rated or listed bond issue, or, potentially, to a syndicated loan, or indeed to any arrangement where one party guarantees the performance of obligations of another party. The de minimis threshold of £10 million of debt set out in paragraph 13(1)(b) is also strikingly low, especially when compared with the equivalent threshold of £50 million regarding the exclusion of capital market arrangements under Section 72B(1)(a) of the Insolvency Act 1986 regarding the appointment of an administrative receiver.

The Bill does not propose a moratorium on claims for companies subject to insolvency procedures. Its purpose is to facilitate restructuring for distressed companies that can be rescued and continue trading for the benefit of all stakeholders, including creditors and employees. I fear that the capital market arrangement exclusion, in prohibiting a large number of companies from benefiting from the moratorium in this Bill, is not conducive to that end when reforms to facilitate restructuring and save businesses and jobs have never been more important. Surely the Government must ensure that the moratorium in the Bill is available in practice as well as on paper. It is certainly not with the capital market arrangement exclusion, as far as medium and large companies are concerned. I appeal to the Minister to reconsider and come back at Report with government amendments addressing this problem.

Baroness Burt of Solihull Portrait Baroness Burt of Solihull (LD) [V]
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My Lords, I will speak briefly to Amendment 6, but I associate myself with the comments of my noble friends Lady Kramer, Lady Bowles and Lord Palmer. Amendment 6 in the name of the noble Lord, Lord Stevenson, to which I have added my name, concerns the threshold that a monitor must believe has been met for a moratorium to be suitable for a company.

Changing “would” to “could” seems on paper to be very small change to such a significant piece of legislation. However, given the relatively short timeframe within which the monitor must satisfy themselves that this criterion has been met, not to mention the difficulties in gathering all the relevant facts regarding the company’s trading, lending and general financial arrangements, it is likely that the cost of doing so will be significant. Under the current threshold these costs could be so high as to prevent the moratorium being used, which is obviously the opposite of what we all want to achieve. This slightly less definitive word could make a significant difference on a practical, working basis. I encourage the Minister to consider seriously this small but significant change.

Lord Vaux of Harrowden Portrait Lord Vaux of Harrowden (CB) [V]
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My Lords, I declare my interest as a chartered accountant. I start by associating myself with the comments of the noble Lord, Lord Hodgson of Astley Abbotts, and other noble Lords about the rushed nature of this Bill. This would be appropriate if it contained only emergency measures, but the Bill introduces important and permanent changes, and the number of amendments we are discussing today rather demonstrates that concern. I thank the noble Baroness, Lady Meacher, for her support for my Amendment 51 to Clause 12. It is to be debated in a later group so I shall speak to it then, but I am grateful to her.

I want to add my support to a number of amendments in this group, and I apologise for having missed the deadline to add my name to them. It is a rather diverse group, so I shall try to sub-group my comments by subject area. I turn first to Amendment 2, in the name of the noble Lord, Lord Stevenson of Balmacara, and Amendment 42, in the name of the noble Lord, Lord Hodgson of Astley Abbotts. Amendment 2 simply makes independence a qualification of the monitor, while Amendment 42 says that the monitor “must satisfy himself” that he is

“free of conflicts of interest”.

These really should go without saying.

The Government seem to be arguing that because insolvency practitioners are professionals, they will do this anyway. I confess that I have a healthy scepticism about the insolvency industry, which has a substantial ambulance-chasing component to it. Conflicts are common- place, and we have been given some good examples by the noble Lord, Lord Hodgson, and the noble Lord, Lord Leigh of Hurley. Making independence a legal requirement in the Bill would seem to be an extremely good thing, and it is hard to see any downside to that.

Secondly, I add my support to Amendment 4, proposed by my noble and learned friend Lord Hope of Craighead. This would simply add a list of creditors to the list of relevant documents that must be provided to the court when applying for a moratorium. This would be a simple and practical way of assisting the monitor to do his job, and in particular, to notify the creditors without delay. It is hard to see any downside to this and really it should be accepted.

Finally, I support Amendment 21, in the name of the noble Lord, Lord Hodgson, and Amendments 25 and 40, in the name of the noble Baroness, Lady Bowles of Berkhamsted. The amendments seek to prevent banks gaming the process by changing the terms of payments and costs during the term of the moratorium. It must make sense to ensure that banks, which will have all the negotiating strength in these situations, are not able to give themselves preferential terms, and so I urge the Minister to consider this matter seriously.

Lord Adonis Portrait Lord Adonis (Lab) [V]
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My Lords, I thought that the noble Lord, Lord Hodgson, made two very powerful remarks earlier in the debate when he said that this Bill seeks to do two separate things. The first is to introduce the emergency provisions in respect of the crisis we are in, and the second is making permanent changes to insolvency law. He also drew attention to the absolutely devastating report on the Bill by the Delegated Powers and Regulatory Reform Committee, which highlights a wider set of Henry VIII clauses than I have ever seen in a Bill of this kind, including the whole definition of which companies are affected by it under new Schedule ZA1, which can be changed by the Government by order, without any primary legislation. I am sure that we will want to return to that.

Even more extraordinary is the Government’s justification for why they have included all these Henry VIII powers, which is

“the undesirability of taking up Parliament’s time unnecessarily.”

Surely it is the job of Parliament to decide whether its time is being taken up unnecessarily, not that of the Government. I draw the particular attention of the Committee to paragraph 8 of the Delegated Powers and Regulatory Reform Committee report, which states:

“In our view, the presumption should be that where something needs changing which Parliament has enacted, Parliament should enact the changes by primary legislation rather than ministers make the changes by secondary legislation.”

That points the way to a number of key amendments that need to be made on Report.

Turning to this group of amendments, it suffers from exactly the same problem that the noble Lord, Lord Hodgson, said the Bill suffers from, which is that it puts together a whole lot of separate things that do not actually go together. Over the past hour and a half, we have debated three completely separate matters: the issue of the independence of the monitor, which is hugely important—my noble friend Lord Stevenson’s amendments in that regard are utterly compelling—along with the issue of wider conflicts of interest in the whole handling of the moratorium arrangements and the people who play a part in them, which again is a wider and separate issue. The third issue, which has been covered comprehensively by my noble friends Lord Hendy and Lord Hain, is the hugely important matter of consultation with the workforce and the priority to be given to employees and workers in these moratorium arrangements and anything that might follow from them. I hope that in his reply, the Minister will be able to pay substantial attention to all three of these areas.

I do not want to go over ground that has already been covered by my noble friends, but I would like to ask the Minister one specific question. In the early stages of the coronavirus crisis, the Government made great virtue of the fact that they were consulting employee organisations, trade unions and the TUC in order to create a consensus on the kinds of measures which would be needed to deal with it. Indeed, in the construction of the furlough scheme, the Chancellor of the Exchequer made great play of the fact that he had been talking to the general secretary of the TUC, Frances O’Grady. It is quite clear that there are concerns among trade unions about the whole way that these provisions will cut across established insolvency provisions and redundancy provisions. Therefore, I want to ask the Minister a specific question—or rather, two related questions.

First, what representations have been made to the Government about the role of employees and their interests in this Bill? Secondly, can he tell us whether he personally or any of his ministerial colleagues have met the TUC general secretary or officials from the TUC to discuss these provisions? I ask that because if we are seeking to proceed by consensus, by the time we get to Report, we will want to know what actual discussions have taken place with representatives of employees and whether we can satisfy ourselves that there has been adequate consultation. If not, the arguments made by my noble friends Lord Hain and Lord Hendy are compelling when it comes to amendments that we will need to make on Report.

Viscount Trenchard Portrait Viscount Trenchard (Con)
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My Lords, as other noble Lords have mentioned, this Bill is an unusual combination of Covid-related measures that clearly need to be fast-tracked, along with measures to implement the long-held belief that we need an equivalent to the Chapter 11 procedures of the United States.

I do not think that a hybrid House is particularly well suited to scrutinising legislation, especially in Committee. I do not think we will be able to say that this is working well. We are making the best of a difficult situation but it only goes to show that in order to scrutinise the Government’s legislation properly, we need to get back to the proper House as soon as we can.

The only good point I might mention is that, for the first time since we went to Virtual Proceedings, in this Committee we have no time limits. It is so nice and such a relief that we do not have my noble friend the Minister turning round to scowl at us as soon as we have gone 10 seconds over the prescribed one minute or two minutes.

Amendment 1, in the name of the noble Lord, Lord Stevenson, seeks to narrow the definition of persons entitled to be appointed as monitors from “a qualified person” to qualified accountants. I would not support this narrow definition because it may be too restrictive, especially for small enterprises. A monitor should be someone with a professional qualification, issued by a body whose members are carrying on a relevant regulated activity.

I agree with Amendment 2, in the names of the noble Lord, Lord Stevenson, and my noble friend Lady Altmann. It is important that the monitor should be capable of independence and objectivity. The current IESBA—International Ethics Standards Board for Accountants—code of ethics definition of “independence” explains it as being made up of two elements: independence of mind and independence of appearance. The former is defined to include integrity, objectivity and scepticism. The latter is defined as being free from facts and circumstances that would lead

“a reasonable and informed third party”

to conclude that integrity, objectivity or scepticism was compromised.

I ask the noble Lord, or my noble friend, to confirm which definition of independence they would apply and whether it should be a strict, rules-based one, comprising a list of prohibitions of those related by blood, marriage, shareholding, et cetera, or a looser one, based on principles and objectivity. I hope that a sufficiently robust definition of independence could be included, so as to render unnecessary Amendment 42, in the names of my noble friends Lord Hodgson of Astley Abbotts and Lady Altmann, which seeks to ensure that a monitor should not be exposed to any possible conflicts of interest.

As precise amounts can be difficult to assess, I support Amendment 4, in the name of the noble and learned Lord, Lord Hope of Craighead, rather than Amendment 3, in the name of the noble Lord, Lord Mendelsohn. However, I agree that some kind of document showing the number of a company’s creditors would be useful to the court in making a decision on granting a moratorium. As explained by the noble and learned Lord, Lord Hope, that would assist the monitor in his or her duty to notify every creditor.

The noble Lord, Lord Stevenson, makes a case in Amendment 10 for the extension of the initial period in relation to a moratorium from 20 to 30 business days; this means six weeks, rather than four. I think that 20 days should be enough, even for small companies. Obviously, it will not be enough time for a complex restructuring, but that is not the purpose of a moratorium as introduced in this Bill.

I support Amendments 12, 13, 17, 18, 30 and 31, as proposed by my noble friend Lord Leigh of Hurley. Like my noble friend, I also have spent more than 30 years as an investment banker, much of it doing mergers and acquisition business. Like him, I know just a little bit about this. In the case of companies which have both viable businesses and non-viable businesses, it may be that to rescue one or more of a company’s businesses is sensible in cases where a rescue of a whole company may not be realistic. Does my noble friend not therefore agree that his amendments would be improved further if, after “company”, they sought to insert, “or the whole, or some part, of the company’s business”? I understand that this issue was much discussed at the time of the Enterprise Act 2002. There are of course very many companies which contain only one, or one substantive, business. But surely, in other cases, it is the rescue of a business, as opposed to the rescue of a company as a legal entity, that is important.

I also support Amendment 27 in the name of my noble friend Lady Altmann. Where an asset has been pledged to a company’s defined benefit pension scheme, it should not be within the powers of the court to release it for sale without the consent of the pension protection fund, as well as, surely, the trustees of the pension fund itself.

Lord Liddle Portrait Lord Liddle (Lab)
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My Lords, I would like to make three points—briefly, I hope. The first is a point of process. It would be nice if the Minister acknowledged that this is clearly not a normal Committee stage. We are grouping different subjects in a way that we would not do normally, because of the urgency of the Bill. Given that we are moving to a critical economic situation, I accept that urgency, but this is not a normal way of proceeding. As the noble Viscount, Lord Trenchard, and the noble Lord, Lord Hodgson, have just said, the Government are trying to deal with the situation by mixing things that are required for the immediate economic urgency with longer-term reforms, and, at the same time, trying to deal with the uncertainties of what they will face by including lots of Henry VIII powers in the Bill.

This is a classic example of where effective post-legislative scrutiny is needed. We should have a committee to look at how the Bill is implemented, and to bring forward proposals for reform after six months, or a year, or whatever seems reasonable. My first point is that this is not satisfactory, and we need a process of post-legislative scrutiny.

Secondly, I am not an insolvency practitioner and I have never had to deal with anything insolvent. However, I am greatly interested in questions of industrial policy. Prior to the Labour Government coming to power in 1997, I read a lot of academic pieces about our bankruptcy and corporate insolvency provisions which suggested that our law was much tougher than that of the United States, and, as a result, was a barrier to the entrepreneurship that all sides of this House want to see flourish in this country. Indeed, the Labour Government went on to reform the bankruptcy and insolvency laws.

There is of course always a tension in this. The introduction of something equivalent to the US Chapter 11 has also led to abuses, and we have all seen instances of companies going insolvent, where, on the face of it, it looks as though their boards have behaved with a great deal of irresponsibility. It would be nice, therefore, to have a statement from the Government on what they think the responsibilities are to be of the monitor that is being introduced. In whose interests will the monitor be acting? What is the public interest in these legal reforms? This is not a matter for legislation, but rather for a major speech by Ministers, which would then be taken into account in subsequent interpretation of the legislation by the courts. As someone said, I am sure that there will be a lot of that.

On my final point, I have of course a lot of sympathy with my Labour colleagues who have pointed out that the trade unions, workers and employees have not had a fair deal in these matters in the past. I would like to see their rights strengthened in this legislation, but there has to be a balance. One of the most disastrous experiences of a crisis happened in the coal industry in 1926, when the union position of “Not a penny off the pay, not a minute on the day” led to a human tragedy of awful proportions in Britain. To save their company, the workers may be prepared to make sacrifices, but their position needs to be strengthened. Again, I would like from the Government a high-level political statement to say that they accept that our culture of capitalism has to change, that we have to move in a more partnership- driven direction, and that when dealing with the details of things such as insolvency law, we should try to reflect in legislation the need for a balanced set of rights and obligations.

I must apologise to the Minister: I have another engagement, which may mean that I will not hear his reply at the end of this discussion. I will, however, be coming back to the Committee as soon as I can.

Lord Balfe Portrait Lord Balfe (Con) [V]
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My Lords, I begin by endorsing what the noble Viscount, Lord Trenchard, said about the way we are conducting this. We are in a very unusual time, I accept, but I hope that as soon as possible we will get back to a normal House and a normal way of dealing with Committee stages—and with everything else, for that matter.

My second point is for the Minister, who of course comes from the north-east—not a traditional Conservative area, but one that has always had a strong Conservative vote. As we move forward, one thing we need to remember is that the last Labour Government was not exactly the best thing that trade unionism ever saw. They did basically nothing that the Conservatives wanted to repeal when they came in. I ask the Minister to remember that some of the great social legislation of Britain was actually passed by the much-reviled Neville Chamberlain when he was Minister for Local Government and Chancellor of the Exchequer in the 1920s and 1930s: such things as wage councils and some basic rights. The way Stanley Baldwin handled the aftermath of the General Strike contributed tremendously to the fact that the Conservative Party ran Britain for two-thirds of the last century and is well on the way to achieving that again. I make that point in beginning.

My next point is that insolvency is a sad necessity—in a capitalist economy companies go up and down—but it is as much a sad necessity for the workers as it is for the people who own the company, and we should never forget that. The workers in any industry do not go home at night thinking, “My company does not matter”; they are often devoted servants and they are as hard-hit by insolvency as anyone else. I ask the Minister to remember that, as we move forward into the 21st century, we may well need to rewrite the historic deal between the working people and the state in the same way that we did 100 years ago. As such, I will not endorse all these amendments, but I am particularly interested in Amendment 84 tabled by the noble Lord, Lord Hendy, and supported by the noble Lord, Lord Hain, on unpaid remuneration for workers.

One of the great tragedies and wrongs of recent events has been that workers—Thomas Cook is a good example—can put in a month’s work, suddenly their company goes bankrupt and they do not even get the three weeks’ wages for which they have just worked. I ask the Government not necessarily to accept Amendment 84 but to look at a way at least to prioritise the fact that if a company goes into insolvency, wages that are more or less immediately due to the workforce are paid—taken out of the present system, as I understand they are in Germany, and paid to the workers.

I also have sympathy with Amendment 27, in the name of my good noble friend Lady Altmann, which would prevent insolvency practitioners disposing of items that are pledged to a pension fund. If items are pledged, they are pledged and cannot just be taken back and sold off willy-nilly. I think the relationship between company pension funds and company assets needs to be looked at. Certainly, my noble friend’s amendment is well worthy of us having a look at to see what we can do.

I also point to something that will come up in a number of subsequent amendments, which is the need to protect pensions. Pensions are a worker’s deferred wages: it is not some bonus pot in the distance that they can have if they are lucky, but part of their remuneration. In a funny sort of way, one of the advantages of a defined contribution scheme is that at least it generally goes to the workers as it is earned, rather than being held on to by the company, but even that needs further looking at.

My final point is that I think we need to look at how the concerns of workers can be heard by the courts. Although I and many others often refer to trade unions, it is worth remembering that the trade union movement in the private sector is incredibly weak and we have to look well beyond trade unions at ways in which working people can be represented in insolvency situations. They should have some rights to be heard, and I believe that those who judge insolvencies should at least be prepared to, and be required to, listen to what they say and, in coming to their decisions, to make their reactions to their representations part of the response: in other words, workers have a right to be heard and to be responded to.

Having said these things, I welcome the legislation. There is never a right time for a Bill such as this. I have reservations about the Henry VIII powers, but I am prepared to see if this will work. Fundamentally, I think that the Minister, with his background, understand the concerns of working people, particularly working people from outside London, and I am sure that he will do his best to strengthen the Bill in the ways we are urging him to do.

Baroness Kennedy of Cradley Portrait Baroness Kennedy of Cradley (Lab) [V]
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My Lords, I shall speak in support of Amendments 2, 42 and 5. Amendments 2 and 42 seek to make it explicit and clear to all relevant stakeholders involved in a moratorium that the monitor is expected to be independent from the company under consideration. The proposed moratorium is intended to give struggling companies breathing space to turn their businesses around and suspend, for example, a number of actions by creditors, such as chasing debts through the courts or enforcing securities, for as long as the moratorium is in force. To build confidence in the system, the monitor, who decides if the moratorium will help rescue the company, has to be independent of the company under consideration.

It is not unreasonable to assume that creditors will be worried that such a moratorium will be subject to abuse. The monitor is a safeguard in this regard, but will the monitor be able to allay creditor fears if they are perceived not to be independently minded and not to have conflicts? Having a high degree of control over which debts can be paid and which properties can be sold means independence is critical, especially as creditors can apply to courts if they disagree with these decisions. Surely, if the Bill is explicit about the monitor’s independence, it will give greater confidence to all concerned. I hope the Minister will support the intention behind the amendments and set out in his response how the Government will ensure that that independence is achieved.

Finally, I support Amendment 5 in the name of my noble friend Lord Lennie. It is right that once a company enters a restructuring process, there are mandatory talks with trade unions and those who represent employees. Having the right to be fully consulted and having access to the same information that goes to the courts will help ensure the protection of workers in the event of restructuring in an insolvency. I hope the noble Lord will address this too in his response.

Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe (Con) [V]
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My Lords, I shall be brief. I agree with the question of the noble Lord, Lord Stevenson, about the need for clarity on timing and other issues on the moratorium. I was very interested in the comments of the noble and learned Lord, Lord Hope, on how we might proceed. I look forward to the Minister’s response on all the issues raised in this vast group, including on the interests of small business and on the notion of my noble friend Lord Leigh that we focus on businesses, and saving trading businesses, rather than on companies. I think we should listen to those with real experience of the market.

As my noble friend the Minister knows, I support the Bill and look forward to helping to get it through in a way that does not have unacceptable, perverse consequences, including addressing the concerns rightly articulated by my noble friend Lord Hodgson on the use of delegated powers.

Lord Bourne of Aberystwyth Portrait Lord Bourne of Aberystwyth (Con) [V]
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My Lords, I refer the House to my interests as published in the register. I thank the Minister for introducing this legislation, which has many valuable facets to it. I also thank the Law Society for its helpful briefing. I will particularly talk about the amendments that relate to the independence of the monitor, which are extremely important. The point has been well made that this is a simple matter to put right, and I hope that the Minister has been listening. It is clearly right that the monitor should be independent of the company. That runs to the very heart of company law.

I also very much welcome the amendment of the noble and learned Lord, Lord Hope of Craighead, relating to the provision of a list of creditors from directors for a monitor to work from. That is necessary for ensuring that the moratorium process works effectively, and deserves our backing too. I also welcome Amendments 42 and 28, which again relate to the independence of the monitor and ensuring that there are no conflicts of interest—matters that are easily put right, and I hope that we can do that.

It has been a long debate on this group of amendments so I will not detain the Committee long, but I share with my noble friend Lord Hodgson of Astley Abbotts a concern about the two different halves to this legislation. There is the half—no doubt very important—relating to insolvency procedures, which centres on the moratorium and is very welcome, and then there is the other half, which has an urgency about it and which we need to push through very quickly to protect businesses during the Covid crisis. It is as if we have two halves of different cars welded together, as might have been the case with Del Boy and Rodney in “Only Fools and Horses”, with predictable consequences. That is not to say that it cannot be put right, but we need to push through some important amendments to ensure that this works effectively. I hope that the Minister has been listening and will take on board some of the important points made as we have progressed through this group and, no doubt, as we continue throughout the other groups.

Lord Fox Portrait Lord Fox (LD)
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My Lords, I draw noble Lords’ attention to my interests as set out in the register. The noble Lord, Lord Stevenson, in his understated way, called this a wide group of amendments and we have heard a wide and knowledgeable group of Peers speaking to it. I agree with the noble Viscount, Lord Trenchard, that we need proper scrutiny of this Bill. Whether we are here virtually or physically, cramming so many amendments into one group is symptomatic of trying to rush this Bill through. That will have unintended consequences, whether the noble Baroness, Lady Neville-Rolfe, believes it or otherwise. We are suffering from undue haste in trying to do in one day what should have been done over at least two or three days.

I will speak to a small number of amendments. On Amendment 10, the noble Lord, Lord Stevenson, queried 20 days and suggested 30 days. My question for the Minister is: why 20? What was the science and evidence that suggested that 20 was correct? The noble Lord, Lord Leigh, spoke about the courts being busy. Well, one way of relieving the courts of work would be to have a slightly longer period, because that would mean that the monitor would not have to go back to the courts so often to renew the process. Why 20 days and why not 30, or indeed some other number of days?

Amendment 2, to some extent Amendment 1 and certainly Amendment 28 ask the perfectly reasonable question of what the monitor’s role is. What is the correct qualification for the monitor? It is perfectly reasonable in a Bill such as this, with the role of monitor so central to this process, that we understand what that monitor is and who it might be. I look forward to the Minister’s comments on that.

This group, among others, contains a whole load of amendments that address what I call the creditor waterfall. Amendment 21 and, in different ways, Amendments 25 and 40, talk about the role of the banks and financial institutions and seek to restrain the advantage that those institutions can get from their special position within the creditor landscape. It is not in the Government’s interests to continue to allow these organisations the freedom of the remaining resources of a failing business. What was going through the mind of the Government when those decisions were made to set out this level of access and give financial institutions the run that they seem to get from the Bill?

My noble friends Lady Kramer and Lady Bowles and others talked about the role of small and medium-sized businesses, and Amendment 22 adds small entities to the list of those with preferential treatments. Amendments 37 and 40 call for a review after 18 months of how a moratorium is dealing with SMEs. This is an entirely different review from the other reviews that crop up on later groups. It is very much about how this is really affecting businesses. I am proud to put my name to Amendments 98 and 99, proposed by my colleague and noble friend Lady Bowles, which makes wages and salaries rank alongside continuing supplier and not below them. That seems entirely reasonable and I thought that she set that out very well.

All these issues set up the central point: the Bill is not a fully formed piece of legislation. The Government have recognised that, as my noble friend Lady Bowles pointed out, by granting themselves an almost unprecedented ability to rewrite it. They know that it is not the finished article. We will have an opportunity in later groups of amendments to discuss a better way of doing that and a way of giving Parliament the power to assess and possibly rewrite the rules, but I look forward to the Minister’s reply.

Lord Callanan Portrait The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
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I thank all noble Lords who have spoken in this debate. Yet again, the contributions have demonstrated the breadth of expertise that exists in this House. I must say to my noble friend Lord Trenchard that I would never scowl at him. This is entirely the job of the Whips and not my fault. While there is of course no overall time limit on speeches at Second Reading, there is an overall time limit on the debate in Committee. With that, I will address as many of the points as possible. I apologise to noble Lords if there is not enough time to address all their points, but I am happy to have individual correspondence or a meeting with anyone who does not feel that their concerns have been addressed.

The moratorium was a subject raised by many noble Lords. It is built on two pillars: that the directors believe that the company is insolvent or likely to become so, and that an insolvency practitioner thinks that the company is liable to be rescued having been in a moratorium—finances on one hand and viability on the other. The intention of the moratorium is not to make the creditors’ position worse nor to allow a company to delay an inevitable administration or liquidation. On the contrary, the intention of the moratorium is to rescue the company, and a rescue of the company will be better for creditors, better for suppliers and of course better for employees.

I say in response to the noble and learned Lord, Lord Hope, that, although I fully understand the intention behind his amendment, we are concerned that it would add another burden on to the directors of the company at a time when the company needs to enter into the procedure as quickly as possible. It has never been our intention that the moratorium should be used to “line up the ducks” for a pre-pack administration. Although they are subject to some criticism, we believe that pre-packs are a useful tool that allows businesses and jobs to be saved. However, as with all administrations, the likelihood of a substantial return to unsecured creditors is of course small.

The amendments tabled by noble Lords who seek to lower the barrier to entry into a moratorium to focus on the rescue of a company’s undertakings, rather than the company, could, in our view, lead to increased losses to creditors. The new moratorium provides protection for a company, perhaps further upstream than when administration is the only route open to it. If the company or corporate vehicle can be saved, the outcome for unsecured creditors will almost certainly be better than it would be through the form of insolvency that results in the sale of the company’s undertaking and its ultimate dissolution.

As has been said, the moratorium lasts for an initial period of 20 business days, although it can be extended relatively easily for a further 20 business days. In response to a point raised by the noble Lord, Lord Fox, and my noble friend Lord Leigh, we do not believe that it will lead to an increased burden on the courts. The moratorium is intended to be light touch as far as the court is concerned. Entry is by administrative filing, other than where overseas orders file a winding-up petition, rather than through judicial scrutiny. The courts get involved in longer moratoriums only if the monitor requires court direction or if there is a challenge to the monitor or to the directors’ actions. I hope that that resolves those issues.

Although, in my view, the amendment in the name of the noble Lord, Lord Stevenson, that seeks to permit small businesses an initial period of 30 business days is laudable, it does not appreciate the position that the company’s creditors are in. In our view, the moratorium balances creditor interests with those of the company.

The noble Lord, Lord Fox, asked why the period proposed is 20 days, and that of course is a good question. We consulted on what the period should be, and the clear view was that it should not be left for too long before creditors’ views are considered. The Government are confident that a moratorium with one extension lasting 40 business days is the right length. There is of course always a balance to be struck, and the company should seek the views of its pre-moratorium creditors on whether a moratorium should or should not continue.

A number of amendments have been tabled on the role and status of the monitor, including by my noble friend Lady Altmann, the noble Baroness, Lady Kramer, and my noble friend Lord Hodgson. It is important to say that only licensed insolvency practitioners—a highly regulated profession—are permitted to be monitors of company moratoriums. Practitioners are subject to very high ethical and professional standards. The insolvency code of ethics sets out five fundamental principles of ethics for insolvency practitioners. These include the need for objectivity and a duty not to compromise professional or business judgments because of bias or a conflict of interest. We believe that this strong regulatory framework underpins the independence of insolvency practitioners from those who appoint them.

Many of the amendments proposed by noble Lords, with good intention, seek to strengthen the independence of the monitor, but in our view they would in practice add nothing to the regulatory framework that monitors will already be subject to. Creditors benefit from strong protections. If they think that their interests have been unfairly harmed by the action, or indeed inaction, of the monitor or the directors during a moratorium, it is always open to them to challenge that behaviour in court. This specific right to challenge builds on the strong foundations of the regulatory framework.

In addition, employees are well protected. Requiring a statement from a trade union, alongside documents filed in court when a moratorium commences, as proposed by the noble Lord, Lord Lennie, would in our view add an unacceptable layer of bureaucracy. It might also risk a company’s financial problems being publicised before it is protected from creditor action, leading to unnecessary company failures. I repeat the Government’s view that the greatest support that we can give workers is to keep their businesses afloat, thereby saving their jobs.

The noble Lords, Lord Hendy and Lord Hain, raised a number of other points that will be addressed when we reach the ninth group of amendments.

The noble Lord, Lord Adonis, asked me about consultation with trade unions. My ministerial colleague Mr Scully meets regularly—once a week, I think—with trade unions, and has consulted with them on many of these points.

As I said, the moratorium is intended to be light touch and a lower-cost process than existing insolvency procedures. At all times, directors retain control of the company’s management. It is important to remember that control does not pass to the monitor. Increasing the legislative burden on the monitor would detract from what is intended to be the light-touch approach. It would not reflect who was in control of the company, and of course it would add costs while adding little value.

Debts arising from financial services and their treatment both within the moratorium and in any subsequent insolvency also attracted the interest of many noble Lords with their amendments. I of course understand the purpose of the amendments proposed for these parts of the Bill and the concerns that were raised at Second Reading about the treatment of financial services debts in a moratorium, including their super-priority or protection in a subsequent insolvency procedure. I repeat what I said during that debate: the Government take this issue very seriously and we have considered it very carefully. We will bring forward an amendment on Report to amend the definition of pre-moratorium debts so that accelerated pre-moratorium debts will not be afforded super-priority status or protection. In our view, the amendment is important to ensure that the Bill works in a way that I think we all intend it to.

In addition, there is a range of financial services legislation and, in some cases, bespoke insolvency regimes for parts of the sector that are designed to deal with the failure of a financial services firm. They are there to mitigate risks to financial stability and to protect consumers. Furthermore, they reflect the fact that the way goods and services are traded in this sector is different from in the rest of the economy. The financial services exclusions from the moratorium are therefore designed to ensure that the operation of certain financial services is unaffected and that financial market participants have the legal certainty that they need to facilitate the efficient functioning of financial markets. Not excluding companies that are party to capital market arrangements could have severe repercussions for the operation of those financial markets. Firms could suddenly find that their financial transactions were no longer excluded from the effects of the moratorium, and that could have wide-ranging and systemic impacts on the financial system.

In addition, it is important to recognise that financial services firms are a key part of making the moratorium provisions work. Critically, they are not excluded from the moratorium where they are a creditor of a company in distress, so they continue to support those companies. It is recognised that not excluding financial services contracts from the payment holiday definition could remove the incentive for those firms to continue to provide finance. That could leave companies in great financial difficulty and therefore far worse off.

Again, I thank noble Lords for their contributions to the debate, for their amendments and for the interest that they have shown in this new procedure. I hope that they have found satisfactory my explanation and the information that I have shared with the Committee on amendments that we intend to table on Report. I hope, therefore, that the noble Lord will feel able to withdraw his amendment.

Lord Bates Portrait The Deputy Chairman of Committees (Lord Bates) (Con)
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I have received a request to speak after the Minister from the noble Baroness, Lady Falkner of Margravine. After the noble Baroness, we will hear a response from the Minister.

Baroness Falkner of Margravine Portrait Baroness Falkner of Margravine (Non-Afl)
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My Lords, for clarity, I did not request to speak after the Minister; it was due to an inadvertent error that I ended up not being on the list to speak when I should have spoken. In fact, as I am speaking after the Minister, I will use the opportunity to make one or two general observations about this process that conform to what the noble Lord, Lord Hodgson of Astley Abbotts, and the noble Viscount, Lord Trenchard, have said.

This is the second Bill in which I am involved in legislative scrutiny. The first one was when we had a virtual House, and with this one we have a hybrid House. I can only concur with everything that has been said about how a hybrid House cannot work for any kind of complex or contentious piece of legislation.

These are pieces of legislation with implications that, as several noble Lords have said, go beyond the immediate health and economic emergencies. They should not be passed by this House unless and until we have the capacity to undertake proper scrutiny. Normally, my only excuse for speaking at this point would be if the Minister had said something on which I needed further clarification; I would then have spoken before he had sat down.

The idea that one is still continuing to speak to amendments in this manner is regrettable, but there is a broader point, also raised by the noble Lords, Lord Liddle and Lord Adonis: this is complex legislation, we do not know when we will revert to normal procedures, and a vaccine may not be found. I hope that this situation does not continue for very long, but it could continue for some time. In that case, do the usual channels deal with the legislation that is pertinent to the health and economic emergency that we face in this House through these proceedings, as a necessity, and therefore, park legislation that has very long-term implications for all kinds of governance in this country, until this is over? I do not blame the Government. They are trying their best to deal with an emergency facing the country. However, I wonder whether there is some level of complicity—I use that word with care—in the usual channels, that they so comfortably settle into these extraordinary arrangements. If people were truly aware of what was happening, of how we are passing legislation and how we are conducting scrutiny, even in terms of Oral Questions, they would be quite astonished.

Turning to the Bill, I am not going to use the notes that I would have used for this speech, but there are one or two things it is important to put on the record. I declare an interest as set out in the register, concerning the Bank of England, and that I am speaking in a personal capacity on this Bill. I have already spoken about the inappropriateness of doing this in this manner in Committee, but I also want to say a word or two about fast-track legislation. I sat on the Constitution Committee when it did a report on when and how Governments should use fast-track legislation. In all candour, and with the highest regard for the Minister, there are measures in this Bill that are simply inappropriate for fast-tracking through the Chamber in this way. These longer term and permanent changes should not be discussed today.

In light of that, I completely support Amendment 37 in the names of the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, for the Secretary of State to conduct a review of the provisions for a moratorium, and to lay a report before Parliament. They indicate that the review should be done in 18 months, which is a fair timescale.

I also support Amendments 2, 4, 8, 28 and 42, in the names of the noble Lords, Lord Stevenson, Lord Palmer, Lord Fox and Lord Hodgson, the noble and learned Lord, Lord Hope, the noble Baronesses, Lady Bowles and Lady Altmann, concerning all aspects of the independence of the monitor. The danger of the Bill not making clear the separation and independence of the monitor is a perception that there was a closeness between the directors of the company and a lack of transparency for creditors. I support those amendments essentially to assist the monitor, those insolvency practitioners. I hear what the Minister says about their own regulatory framework and the onus upon them to behave in an upright manner, but as he noted in his closing remarks, there are enough safeguards built into the regulation of insolvency practitioners whereby these amendments are otiose. I argue that by having them in this Bill—which is subject to review if Amendment 37 passes on Report—if they were entirely redundant, we could do away with them in 18 months. The Secretary of State could then lay before us the report that says that these amendments are redundant. I argue that this helps the monitor at this point, and on that basis, I intend to support them on Report.

Lord Callanan Portrait Lord Callanan
- Hansard - - - Excerpts

I thank the noble Baroness. I am sure she understands that her comments about the hybrid House are not a matter for me. I have responsibilities in a number of areas, but the operation of this House is not one of them, so I will allow her to take those up with those Members who are responsible. I am merely a servant and am prepared to operate in whatever way the House sees fit.

Addressing the noble Baroness’s points about the Bill, it is important to recognise that permanent provisions have not been developed just in the short time since Covid-19. Some of the temporary provisions have, but the permanent provisions were the subject of a considerable period of consultation and engagement dating back to 2015. The process included the then Government’s review of the corporate insolvency framework, a public consultation in 2016 and an extensive period of engagement since then with a wide range of stakeholders. Additionally, the Bill includes regulation-making powers to enable changes to be made as and where necessary, so there has been extensive consultation. The intention to legislate in this area was announced in 2018, but this crisis has made it imperative. The Bill offers important new flexibilities and rescue opportunities that may help many businesses to continue trading during this crisis, which I hope the whole House would agree is the ultimate objective

Lord Stevenson of Balmacara Portrait Lord Stevenson of Balmacara [V]
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I thank all noble Lords for the huge range of points that have been brought to bear in this debate. It was inevitable, given the way that the amendments are grouped, that we would range far and wide over the Bill. It was not a repeat of the criticism at Second Reading, because we were drilling down into important areas which in other times might have been picked up for further consideration during the later stages of the Bill, but cannot be because of the short timescale we are talking about.

The Minister made only two substantial points in his response. He is going to bring forward amendments to protect the way that debts are accrued during the moratorium period. I very much look forward to seeing those—we welcome the news. There is a concern around the House about this particular area, where we step into uncharted territory with the idea of a moratorium, and we want to protect it as much as we can. More statutory-based procedures on this will be helpful.

I disagree with the Minister that workers and employees are well looked after in this Bill. The evidence does not support that. I leave it to others to judge from the contributions that were made by my noble friends Lord Hendy and Lord Hain; they made an unanswerable case for further consideration, but if it is not to be, it is not to be and we will just have to wait for another opportunity. However, the Government are well out of step here, and that is going to cause trouble further down the track.

My original amendment, which headed the group, was not the only point raised, as I made clear, but it was about an issue that picked up a lot of support. I am grateful to those who spoke in support of it, particularly those who also had amendments down which were spoken to during the debate. This is the question of how we are going to support the new position of monitor. During the debate I was alerted to the fact that the Government had published their draft guide for monitors. It is a pity that it was not available before this debate, but at least it is now. On a quick read-through, it is interesting that it is based very much on the current IP regulations, and goes so far as to suggest some formal amendments to those regulations, to allow for the role played by the monitor to be given a backing. However, it also makes it clear that these are very temporary statements by the Government, pending further work through statutory instruments, and I am sure that is right.

That leaves me with a thought, which I do not need a response to at this stage. If we are in the process of seeing a set of regulations that will be so fundamental to the success of the Bill, it would make sense—I hope the Minister accepts this—to have an opportunity for noble Lords who have declared during this debate and others to contribute to them. I am sure he would gain from that. We certainly seem to have time to do that, although time is very short, and I hope that he will take that opportunity. I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Amendments 2 to 6 not moved.

Baroness Henig Portrait The Deputy Chairman of Committees
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We now come to the group beginning with Amendment 7. I remind noble Lords that anyone wishing to speak after the Minister should email the clerk during the debate. Anyone wishing to press this or any other amendment in this group to a Division should make that clear in the debate.

Amendment 7

Moved by

7: Clause 1, page 3, line 27, after “company” insert “or the company’s business”

Lord Leigh of Hurley Portrait Lord Leigh of Hurley [V]
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My Lords, this amendment is broadly similar to my earlier amendments—I am not quite sure why it is in a different group, to be honest, but so be it. It applies to the circumstances not of an extension but of an appointment of a monitor, and requires the directors to get the proposed monitor to state that it is likely that the moratorium would result in the rescue of the company as a going concern. The word “would” has been helpfully and sensibly addressed by the noble Lord, Lord Stevenson—it should be “could”—and again, the word “company” should have after it, as my amendment proposes, “or the company’s business”. I would very much like the Minister to specifically address this issue of the difference between company and business; unless I missed it, I do not think it was. If it is not possible to do so in his closing remarks, perhaps he would oblige me with a letter.

I am sure that the Minister will not be able to resist Amendment 62, in the name of the noble Lord, Lord Stevenson, as he is so confident that the courts will be able to cope. I am sure that he will find it most helpful to have a clause that requires a review of how the courts have coped. I beg to move.

Baroness Northover Portrait Baroness Northover (LD)
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I will speak to Amendments 71, 76, and 145, which are in my name and that of my noble friend Lord Fox.

These amendments all derive from the conclusions of the Delegated Powers Committee and relate to the often-unchecked powers the Government are seeking to take in the Bill. I thank that committee for its careful scrutiny of this and other Bills. As the noble Lord, Lord Hodgson, said, its report is devastating. There is clearly huge concern about the powers that the Government are proposing to take in the Bill, and most of the amendments in this group address those points. For example, the noble Lord, Lord Stevenson, by seeking to amend numerous places where the Government are taking powers, is challenging the Minister in each instance to justify that, and we will have to see what case the Minister makes. I also look forward to hearing what the noble Lord, Lord Blencathra, who chairs the Delegated Powers Committee, says.

The Government have argued that they need to act with speed because of the urgency of the coronavirus pandemic. However, many measures here will persist indefinitely, as the noble Lord, Lord Hodgson, made clear. We are proposing three specific changes, recommended by the Delegated Powers Committee. As all noble Lords here will know, although it may be less well known should people outside be following these proceedings, the committee’s particular concern is with so-called Henry VIII powers, named for his supposed preference for legislating by proclamation rather than through Parliament. These powers enable Ministers to amend or repeal provisions in an Act of Parliament using secondary legislation, which is subject to very limited parliamentary scrutiny. These powers thus transfer power from Parliament to the Executive: the Government.

Thus, for example, the Delegated Powers Committee notes that Clause 23 confers extremely wide powers on the Secretary of State:

“The powers include the power to make provision amending, or modifying the effect of, any Act of Parliament ever passed—including the Bill itself.”

That is an astonishing statement. The committee describes this as something that

“might be called a ‘super-Henry VIII power’.”

We therefore propose in Amendment 71 the affirmative procedure, where regulations under Clause 23 amend primary legislation, as recommended by the committee.

Amendment 76 addresses Henry VIII powers in Clause 37. The Delegated Powers Committee does not accept the Government’s argument that they need to act with speed and recommends

“that the affirmative procedure should apply where regulations … amend primary legislation.”

It outlines ways in which speed can be delivered, for example through a “made affirmative” instrument, which could come into force pending approval by both Houses within a specified period of time. Our Amendment 76 delivers the affirmative procedure.

In relation to Amendment 145, the Delegated Powers Committee notes:

“Each of paragraphs 2, 4 and 6 of Schedule 14 confer Henry VIII powers.”

It emphasises that the “made affirmative” procedure could be used and points out that the Government acknowledge this in other instances elsewhere. It recommends

“that the affirmative procedure should apply.”

Our Amendment 145 delivers that.

I am sure that, as ever, the Government will pay close attention to what the Delegated Powers Committee said, especially since these powers cause such disquiet across the House. They are also an especial target of those three notable lawyers, the noble and learned Lords, Lord Hope and Lord Judge, and the noble Lord, Lord Pannick, whose names often seem to represent not the stages of grief but the stages through which Governments proceed when they defend, then amend, such powers. I am sure that the Government will pay close attention to the committee’s report; I trust, therefore, that they will find all three of the amendments I have outlined here acceptable.

Lord Blencathra Portrait Lord Blencathra (Con) [V]
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My Lords, I will move that Clause 1 do not stand part of the Bill but I have no intention of seeking to delete the whole clause. I use this mechanism to draw attention to the Delegated Powers Committee’s recommendations on the excessive Henry VIII powers in the Bill. I am honoured to chair that committee.

Last Wednesday afternoon, we published our report. We drew the House’s attention to a number of concerns about the use of the delegated powers in the Bill. I am grateful to my noble friend Lord Hodgson, who referred to our report with great approbation in speaking to his amendments in the first group. I am also grateful to the noble Lords and noble Baronesses who high- lighted other parts of our report and some of our recommendations.

In our report, we draw attention to

“New Part A1 of the 1986 Act, inserted by clause 1 of the Bill”.

That clause alone contains 10 Henry VIII powers allowing the Bill to be amended when it becomes an Act. I will not list them today; the noble Baroness who just spoke mentioned three of them in particular. There are also further Henry VIII powers in Clauses 23 and 27 and Schedule 1. As we reported, the powers in proposed new Part A1

“are all designed to be permanent changes to insolvency law. The justifications offered by the Government involve: ensuring that the provision remains ‘fit for purpose’; the need to act quickly; the undesirability of taking up Parliament’s time unnecessarily.”

We say in our report:

“Ensuring that something remains ‘fit for purpose’ means little more than that the Government want to be able to change the provision by regulations if their policy changes. In our view”—

it has always been Parliament’s view—

“the presumption should be that where something needs changing which Parliament has enacted”

in an Act of Parliament,

“Parliament should enact the changes by primary legislation”

in another Act of Parliament

“rather than ministers make the changes by secondary legislation … As for legislating quickly, this is often best avoided”,

as we have seen time and again that urgent legislation usually needs amending sooner rather than later to plug gaps or correct mistakes.

The report continues:

“And where legislation is needed quickly, the coronavirus outbreak has shown that Parliament is capable of legislating quickly”

when necessary. It goes on:

“As for not taking up parliamentary time unnecessarily, this is a matter primarily for Parliament. Parliament’s task is to scrutinise the Government, including the scrutiny of major legislation that has been drafted in haste and which confers wide-ranging powers on the Government.”

I have heard the criticism today that our hybrid procedure is not the perfect way to do Committee or Report work, but no one has said that we do not have the time to do some scrutinising. I believe that in our hybrid procedures we still have ample time to do more scrutiny of Bills before Parliament.

My committee concluded that

“the Government have not demonstrated the need for the Henry VIII powers”

we identified, adding:

“We recommend that they be removed from the Bill.”

But we did not stop there. We also recognised the need for speed and flexibility and recommended that many of the regulations the Government may need to make should be done using the “made affirmative” procedure. We all know that all Governments under all Administrations prefer to bash things through on the negative procedure with no scrutiny; it is great if you can get away with it, and I did it myself when I was a Minister. The justification is always speed and that they cannot wait for an affirmative resolution. That is sometimes true, but the “made affirmative” procedure allows for exactly the same speed as the negative procedure but also allows parliamentary scrutiny afterwards.

We said in paragraph 22 of our report:

“However, another procedure exists under which an affirmative instrument may be made and come into force before it is approved by both Houses. This is known as the ‘made affirmative’ procedure. Under this procedure, the instrument is able to come into force as soon as it is made, but it will automatically cease to have effect if it is not approved by both Houses within a specified period of time. The period specified for approval is usually 28 days or 40 days, subject to extension for periods of dissolution, prorogation or adjournment for more than four days.”

We said in paragraph 23:

“Regulations under the ‘made affirmative’ procedure can be made and laid as expeditiously as regulations subject to the negative procedure.”

I suspect that many government departments are simply fixated on affirmative and negative and do not know that the “made affirmative” procedure exists. If they know it exists, they will still try to get away with the negative procedure.

None of these are a proper substitute for a real Act of Parliament to amend another Act of Parliament, but at least the “made affirmative” procedure is far better than changing any Act of Parliament without any parliamentary scrutiny at all. I therefore conclude by asking my noble friend to remove these excessive Henry VIII powers from the Bill.

Baroness Taylor of Bolton Portrait Baroness Taylor of Bolton (Lab) [V]
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My Lords, I share many of the concerns that the noble Lord, Lord Blencathra, has just outlined. I will say a few words as chair of the Constitution Committee. I thank the Minister for calling and arranging to listen to some of the concerns that I thought the committee might have before Second Reading. He will therefore not be surprised by the amendments tabled, particularly Amendments 66 and 70.

First of all, I think everyone on the committee, myself included, recognises that there is an urgent need to protect businesses during this current pandemic, as other speakers have said today. As a committee, we are of course always concerned about the fast-tracking of legislation, but these are exceptional circumstances and we understand why things have to be done in an emergency.

However—and this is a big “however”—the problem is that the Government are fast-tracking not just the emergency measures required but the permanent measures. This is where the main difficulties arise, which are extremely problematic for everyone in the Committee. It is the reason that we have tabled Amendments 66 and 70. I will say a few words about each.

On Amendment 66, there is a requirement that

“The Secretary of State must lay a report before Parliament every three months reviewing the use of regulations under section 18.”

We are not convinced that this is adequate to keep the House informed and to keep the process going, in terms of the transparency needed about the direction of government thought and measures.

Clause 18 allows, as was just mentioned, very wide Henry VIII powers to amend virtually all corporate insolvency legislation. We are handing Ministers big powers through this legislation. I am sure Ministers will remind us that these powers expire on 30 April 2021, but the problem is that the Government can extend and renew them for a year at a time, and then again the following year, without limits. These are quite extraordinary powers. We have tabled Amendment 70 to prevent these powers being used more than once. If our amendment were accepted, these powers could be renewed until 30 April 2022, but no further; the Government would have to come back to Parliament for future legislation. Given the significance of the powers that Ministers are taking, this is reasonable for us to suggest, so that Parliament can have a real role in monitoring what is happening and making decisions about whether this kind of approach is justified in the long term.

Our main concerns are using the fast-tracking procedure not just for the emergency sections of the Bill but the permanent stages, and the need to keep Parliament informed about use of the new powers, so that the Government do not get away with taking such vast Henry VIII powers, with little recourse to reporting to Parliament, in the future. We are also concerned about other matters, such as the retrospective nature of some of the provisions in this legislation. They will be discussed later, and I hope that the Minister responds to those as well. I hope the Minister will acknowledge that Parliament and the House of Lords are facilitating the passage of the Bill in unusual circumstances. There needs to be greater assurance that Parliament can be kept informed and have a role, in the future, to determine the direction of this legislation permanently.

Baroness Fookes Portrait Baroness Fookes (Con) [V]
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My Lords, I am delighted to support the noble Baroness, Lady Taylor, in the two amendments she has tabled, to which I have added my name. I speak not only as a member of the Constitution Committee but as a former member and chairman of the Delegated Powers and Regulatory Reform Committee. I was delighted to hear my successor speak so robustly and correctly. Over the years, I have become increasingly concerned by the way the Government take on to themselves more and more delegated powers. It is important, even when we have a serious problem with coronavirus, that we make our case firmly.

The noble Baroness, Lady Taylor, discussed the two amendments in detail, so I will not go into them, other than to say that Clause 18, which we are trying to soften, is an immensely powerful one. It gives the Government unrivalled powers to take whatever powers they think they need in this emergency, without much restraint.

I regard Clause 18 as King Henry VIII at his most obese, and it is time he was slimmed down; the two amendments standing in our names try to do just that. I thought we had got there with Clause 23, which was the expiry one, but, when you look at it closely, you find that it is not a sunset clause at all because it is possible to renew the power to make these amendments. So I regard it as a pseudo-sunset clause, and it is high time that we all make sure that the Government do not get away, whenever they want, with whatever they want. We must bear in mind too, that it will not always be the present Government; some of the powers would remain for other Administrations, who might not be as enlightened as I am sure the present Government think they are.

Lord Wallace of Tankerness Portrait Lord Wallace of Tankerness (LD) [V]
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My Lords, I am very pleased to follow the noble Baronesses, Lady Fookes and Lady Taylor of Bolton, who are both my colleagues on the Constitution Committee. I have added my name to the amendments that have been spoken to in the previous two contributions, and that carry on the theme of both my noble friend Lady Northover and the noble Lord, Lord Blencathra, about the wide powers in the Bill. As indicated by the noble Baroness, Lady Taylor, the Constitution Committee accepts that there is a need for temporary emergency arrangements to protect business and the economy in the current pandemic crisis. But the committee also stresses, in its seventh report, published last Friday, that:

“During times of crisis and emergency it is all the more important to be vigilant about constitutional principles, such as the rule of law and parliamentary accountability. The need for an urgent response to COVID-19 does not justify Parliament neglecting its duty to consider the constitutional implications of the legislation presented to it.”

As speakers have already mentioned, there are very wide Henry VIII powers in the Bill, not least in Clause 18, which Amendments 66 and 70 seek to address. The Constitution Committee in a report in the 2017-19 Session specifically looked at the use of delegated powers, and said that Henry VIII powers are

“a departure from constitutional principle. Departure from constitutional principle should be contemplated only where a full and clear explanation and justification is provided”.

One looks in vain here for some full and clear explanation. Rather, we are told, in the delegated powers memorandum:

“There are no specific plans to use the power to make temporary changes at present, but it is likely that its use will be considered where representations have been made by industry or where discussions with key stakeholders have identified areas where urgent legislation could help save otherwise viable businesses or mitigate the impact of the pandemic otherwise.”

That is not exactly what one would call an intimation of specific intent.

Notwithstanding these misgivings, Amendments 66 and 70 are relatively modest, so I hope that they will commend themselves to the Government. The noble Baronesses, Lady Taylor and Lady Fookes, have already explained how they will work. In Amendment 66, we seek that a review should take place and report to Parliament. We have reviews of the current emergency regulations, and we find that they are more often shared with the Downing Street press briefing than with Parliament, but this modest amendment would require a report to Parliament. Amendment 70 would see a sunset clause in effect no later than 30 April 2022. The amendment probably to be spoken to later in this group by the noble Baroness, Lady Neville-Rolfe, would have an earlier sunset clause, and I must say I find that somewhat attractive. In the Government trying to take powers like this, they should adhere to constitutional principle. When such widespread powers are sought, they should be well and truly limited in their effect.

Baroness Neville-Rolfe Portrait Baroness Neville-Rolfe
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My Lords, I am glad to follow my noble friend Lord Blencathra, chairman of the Delegated Powers Committee, and other experts on delegated powers. I am sure that we will get a helpful response from my noble friend the Minister on these wider powers. As has been said, I will speak on Clause 39 stand part and the Northern Ireland equivalent, Clause 40.

I tabled these amendments with the help of our excellent Bill clerks, alongside my Amendments 68 and 74, which I may not now need to move as my questions are exploratory in nature; that may help us to make progress. I want to open up a discussion on time limits, particularly of the emergency measures. As I said at Second Reading, I support all these measures, but they change the balance of corporate law and can make life more difficult for the lenders and investors that businesses need for success.

I am very concerned about the powers of extension, which I do not believe will be properly scrutinised if used. Some are more contentious than others; the noble and learned Lord, Lord Hope, raised a good point about wrongful trading, and, as I said, even delays in annual general meetings and corporate filings are unwelcome. These provide vital transparency and the opportunity for probing questions to be asked of companies. If the Opposition’s proposal to extend the emergency measures to the end of September is accepted, I see no need for an extension to the various emergency powers, and certainly not of the easy kind proposed. So that I can consider my position on Report on the various amendments that we are discussing, I would like more details from the Minister on the use of the powers of extension; more of an analysis of the downsides of the emergency measures, as well as their obvious advantages; and details of the criteria that will be applied if and when an extension of power is used, how any costs will be assessed and when the arrangements will sunset completely.

Clauses 21 and 22 seem very elastic—a pseudo-sunset clause, as my noble friend Lady Fookes said—which is not what we are looking for on these emergency measures.

Lord Adonis Portrait Lord Adonis [V]
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I have nothing to add.

Baroness Anelay of St Johns Portrait Baroness Anelay of St Johns (Con) [V]
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My Lords, I would like to speak to Amendments 87 and 88 in this group, which are in the name of the noble Lord, Lord Stevenson of Balmacara. I notice from the speakers’ list that he is due to speak just before the Minister responds to this debate.

I am very pleased to follow others who have talked at length about Henry VIII powers and their dangers and to hear from my noble friend Lord Blencathra, who chairs the Delegated Powers Select Committee. The noble Lord, Lord Stevenson, seeks to amend the Bill to reflect some of the criticisms in the delegated powers report, particularly regarding the Henry VIII powers, which would give the Secretary of State the power to change the circumstances in which a company can be eligible for a moratorium—by presenting an affirmative instrument to the House—and, in that way, avoid having to go back to primary legislation.

Amendment 87 removes the whole power; Amendment 88 circumscribes its use. I believe it is a very brave Government who ignore entirely the recommendations of this House’s Delegated Powers Committee. When the Minister responds, he may suggest one or two courses of action. Perhaps he will offer the House a more plausible justification for a definition of the need for speed that is mentioned—the need for speed for the wide powers that are currently drafted in paragraph 20 of new Schedule ZA1—and press ahead with the current drafting of the Bill. I believe that he may find that too difficult a mountain to climb.

On the other hand, he might say that, while the Government hold to their belief that it is in the interest of businesses that the Government should have the power to make swift changes to these provisions on the extendable 20-day moratorium, he and his department are considering how best to adopt Amendment 88, tabled by the noble Lord, Lord Stevenson of Balmacara, which follows a recommendation of the Delegated Powers Committee that, if the House were prepared to consider the “need for speed” a sufficient justification, the exercise of that power should be subject to a precondition under which the Secretary of State is required to be satisfied that significant damage would be caused to business were the power not exercised.

As a former Chief Whip, I accept that it is understandable that my noble friend the Minister could not have come forward today with something like Amendment 88, given the limited time his department would have had for consideration of the Select Committee’s report. Even though the Select Committee worked at tremendous pace in this world of fast-tracked legislation, the report was not available until last Wednesday afternoon. It is certainly one of the problems that the Government will face when they present any fast-tracked legislation, but they have time to rethink their plans on Henry VIII powers, in particular the ones that are the subject of Amendments 87 and 88. Whatever the Government decide to be the right route ahead, it has to be the right route to ensure that the legislation will deliver the policy that businesses need around the country, but in a way that the Constitution Committee too can describe as appropriate. Whatever happens, I am sure that we will return to these issues on Report.