Lord Callanan

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That the Bill be now read a second time.

The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)

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My Lords, we have faced, and continue to face, a global health emergency on an unprecedented scale. The Covid-19 pandemic has brought significant challenges to our country and our economy. The imposition of strict social distancing measures has meant that many businesses are facing significant short-term difficulties and, some, sadly, the threat of insolvency.

Providing support to UK businesses is at the heart of the Government’s economic response to Covid-19. The fiscal package introduced by the Government has provided billions to businesses through support schemes such as loans, grants and the job retention scheme. The Bill will provide additional support to businesses by giving them the flexibility and breathing space that they need to bounce back from the Covid-19 pandemic. To achieve that, the Bill will do the following.

First, it will introduce a package of permanent reforms to insolvency law to give businesses the space and tools required to maximise their chances of survival. Secondly, it will temporarily suspend parts of insolvency law to protect companies from aggressive creditor action and give company directors greater confidence to continue to trade through the pandemic. Thirdly, it will extend greater flexibilities to businesses, allowing them to hold their general meetings in a way which is consistent with social distancing measures, and providing more time for them to file the information they need to with Companies House. This package of measures will help give businesses the support they need to keep trading, preserving jobs and value, and laying the foundations for the UK’s economic recovery.

The first set of measures is a corporate restructuring package that will make permanent changes to the UK’s insolvency framework. The Government previously consulted extensively on these changes to the corporate insolvency regime and we announced plans in August 2018 to introduce new insolvency rescue and restructuring procedures. The Bill will implement those reforms. This package of reforms will have an immediate effect in helping companies get through the Covid-19 emergency by providing them with the breathing space that they require to help them avoid insolvency as they seek a rescue. The package contains three elements.

The first is a moratorium, which will give financially distressed companies breathing space from their creditors while they seek a rescue. It will last initially for 20 business days, and can be extended. During this time, legal action is restricted against a company without leave of the court. There are some time-limited relaxations of the eligibility criteria for the moratorium to make it easier for companies to enter a moratorium during the Covid-19 crisis.

The second element of the corporate restructuring package is the introduction of a new restructuring plan. This will allow companies to restructure complex debt arrangements and bind creditors to the plan as long as certain thresholds are met. As the House would expect with a proposal that has a binding effect on creditors, significant safeguards are in place for them. For example, the court must be satisfied that dissenting creditors will not be made worse off than they would have been under the next most likely outcome.

The third and final element of the corporate restructuring package is the prohibition of termination clauses. Such termination clauses are often found in supply contracts and are triggered on the commencement of an insolvency or rescue procedure. Their prohibition will mean that contracted suppliers cannot terminate contracts, or demand additional payments, just because the company has entered an insolvency procedure or moratorium. However, there are again safeguards in place for suppliers to protect them from financial hardship as a result of their being required to continue to supply. In addition, due to the impact of Covid-19 on small companies, small suppliers will be temporarily exempt from this requirement.

The Bill also introduces some time-limited measures to provide additional support for businesses during the crisis. The first of these is the temporary suspension of wrongful trading liability. Wrongful trading liability is a deterrent against company directors continuing to trade when their company is insolvent. This temporary suspension will encourage directors of companies that would be viable but for the impact of Covid-19 to continue trading without the threat of personal liability. Let me reassure noble Lords that, while we believe this suspension to be necessary at this time, directors will still be bound by the rest of their legal duties under wider company law. In addition, measures under insolvency law to penalise directors who abuse their position will of course remain in place.

The second temporary measure will help struggling businesses by removing the threat of statutory demands and winding-up petitions issued against companies during the emergency. The Government have already temporarily suspended the right of commercial landlords to forfeit the tenancies of retail businesses in order to protect tenants unable to trade because of Covid-19. The vast majority of landlords and tenants have been working together to reach agreements on their debt obligations. Unfortunately, however, there have been cases of landlords using aggressive debt recovery tactics, including the use of statutory demands and threats of winding-up petitions, to put undue pressure on tenants. This provision will give businesses the opportunity to reach realistic and fair agreements with all creditors.

All the temporary insolvency measures in this Bill will expire one month after Royal Assent. However, the Bill contains the required powers to extend the temporary provisions should it prove necessary to do so due to the ongoing crisis. Furthermore, the Bill contains the temporary power to make other amendments to insolvency or governance legislation. This will facilitate a rapid response to overcome the emerging challenges to businesses that result from the Covid-19 pandemic. As ever, the House will of course have the opportunity to scrutinise the use of these powers if they are needed.

The final set of temporary measures deals with meetings and company filings. The Bill makes it easier for companies, mutual societies and charitable incorporated organisations to comply with legal requirements on holding AGMs and other meetings while keeping their shareholders and members safe and respecting social distancing rules—as we are doing in this House. This flexibility applies retrospectively from 26 March, giving businesses the certainty that they will not be penalised for trying to do the right thing during the pandemic. The measures will also enable AGMs to be postponed until 30 September this year where necessary.

On filing requirements, we are giving hard-pressed companies more time to submit annual accounts, confirmation statements and various notices of relevant events, such as the appointment of a director, to Companies House. Lenders will also have more time to register a charge against a company’s assets. This follows the announcement made on 25 March that Companies House had extended the period for filing accounts. Over 100,000 companies have successfully applied for the three-month extension that is available. This measure will further ease the burdens on businesses at this difficult time while ensuring ultimately that information is still filed with Companies House within a reasonable time.

Overall, the package of measures in this Bill has been widely welcomed by businesses at this critical time. Following its passage through the House of Commons, the chair of R3 in Scotland, the trade association for the UK’s insolvency and restructuring professionals, stated that:

“The proposed legislation will give both solvent and insolvent businesses crucial breathing space and increased legislative flexibility to review options without being pushed prematurely into an insolvency procedure. This new approach could make a significant contribution to repairing the economic devastation caused by the current pandemic.”


The Government are committed to supporting UK businesses throughout the emergency. These measures are being implemented to alleviate some of the current challenges that businesses are facing, maximising their chances of survival and allowing them to continue trading and to help the UK economy bounce back from this crisis. I beg to move.

Lord Callanan

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I start by thanking all noble Lords, both in person and virtually, for their insightful contributions to this debate, which has shown this House at its best, and for the co-operation of many and their engagement throughout the Bill. I thank particularly the Labour and Liberal Democrat Front Benches for the co-operative spirit that they have shown. I am grateful to all noble Lords who have contributed, and who are helping us scrutinise the Bill effectively.

The points raised have highlighted the importance of the measures in the Bill and the necessity of giving them effect without delay. The permanent package of insolvency reforms in the Bill—the moratorium, restructuring plan, prohibition of termination clauses, et cetera—will provide businesses with the space and tools they need to help them continue trading and avoid insolvency during this challenging time and beyond. It is vital that we introduce these measures immediately to help UK businesses weather this crisis and, I hope, thrive on the other side.

The temporary changes to insolvency law introduced are necessary to help businesses get through this unprecedented period. The temporary suspension of wrongful trading liability will encourage directors to use their best endeavours to keep trading through Covid-19 by removing the threat of personal liability. I again reiterate that directors will still be bound by their wider legal duties under company and insolvency law.

The Bill also temporarily prohibits creditors from issuing statutory demands and winding-up petitions against companies unable to pay their debts due to Covid-19. It will give businesses and creditors the opportunity to co-operate to reach a fair agreement and help companies survive. These temporary insolvency measures are retrospective in effect and have been widely welcomed by the business community. They will apply until one month after Royal Assent and can—and will—be extended should it prove necessary to do so. Of course, any case for further extensions will be carefully considered and subject to all the usual scrutiny that this House undertakes.

The temporary changes to corporate governance that the Bill introduces will provide companies and other bodies with much-needed temporary flexibilities on meetings and filings. This is of particular importance at this critical time, when businesses are struggling to cope with reduced resources and, like the rest of us, are abiding by social distancing rules. We have been careful, throughout this process, to take account of the interests of investors and others in devising these measures.

I will now respond to the many points that have been made. Many noble Lords, including the noble Lord, Lord Stevenson, and my noble friend Lord Balfe, raised the important issue of employees’ rights. I am in complete agreement with my noble friend Lord Dobbs, who summed it up extremely well—as he usually does—when he said that the greatest protection for employees is to see their company survive. Where employees are included in restructuring plan proposals, they will be treated in the same way as other creditors, including in relation to their right to information, participation in voting and ability to make representations to the court. I can confirm to my noble friend Lord Balfe that I fully support ministerial colleagues in the other place, who said that it is expected that the court would be mindful of the interests of employees affected by a restructuring plan when deciding if that plan is just and equitable.

The noble Lords, Lord Stevenson, Lord Mendelsohn and Lord Hain, my noble friend Lady Altmann and other noble Lords asked about the classification of pensions and defined benefit schemes. Similar issues were raised by the noble Baronesses, Lady Drake, Lady Warwick and Lady Blower. Employees will want the company pension scheme to be able to pay them when they retire. If an employee is not a creditor or shareholder of the company, they cannot be included in a restructuring proposal. The interaction between pensions legislation and insolvency legislation gives rise to some extremely complicated issues, and the Government are working closely with key stakeholders to determine any implications for the Pension Protection Fund, the Pensions Regulator and pension schemes more generally.

The noble Baroness, Lady Bowles, spoke about the prioritisation of debt in relation to moratoriums and termination clauses. If a moratorium ends and is followed within 12 weeks by administration or liquidation, any unpaid moratorium debts, including those to suppliers who were obliged to continue supply under the new termination clause provisions, will indeed receive super-priority. This means that they are paid above all expenses of that administration or liquidation, including the administrator’s or liquidator’s fees and payments to other creditors, other than fixed-charge creditors.

On super-priority, the noble Baroness, Lady Bowles, and the noble and learned Lord, Lord Hope, both raised points on preventing banks profiting in moratorium. We are aware of the concerns that have been raised about the priority order of debts. We are also very conscious that attempts to game super-priority, by banks or anyone else, should be deterred. The Government are working with all the relevant stakeholders to ensure that creditors are not disadvantaged by these important measures, and we will continue to work to avoid this.

On the knotty subject of HMRC, many noble Lords, including the noble and learned Lord, Lord Hope, the noble Lords, Lord Adonis, Lord Palmer and Lord Liddle, and my noble friend Lord Leigh, raised concerns about Her Majesty’s Revenue and Customs climbing up the creditor ranking, not through this Bill but through other work that is being done. This House will of course agree—I hope—that it is important that taxes go to fund our valuable public services. This reform will ensure that when a business becomes insolvent, more of the taxes that have already been paid in good faith by its employees and customers, but which are held temporarily by the business, will go to fund public services, as intended, rather than being distributed to other creditors. This is money that has already been paid by employees but is held by the business. It is important to note that HMRC will remain an unsecured, non-preferential creditor for taxes levied directly on businesses, such as corporation tax and employer national insurance contributions.

I thank the noble Lord, Lord Stevenson, and my noble friends Lord Dobbs and Lady Neville-Rolfe for their important points on the need to extend the powers of the Small Business Commissioner. This Government intend to fulfil our manifesto commitment to consult on extending the powers of the Small Business Commissioner to advocate for and support small businesses as soon as we are able. We are keen to capture as many views as possible to ensure that the policy response is the right one. In light of businesses having furloughed staff and other priorities, we do not believe that consulting now would be the correct course of action.

The prompt payment code was raised by the noble Lord, Lord Stevenson, as well as the noble Baroness, Lady Kramer. The code now has more than 2,400 signatories. UK legislation already effectively establishes maximum 30-day payment terms for contracts for the supply of goods and services between businesses and public authorities. There are 60-day maximum payment terms between businesses, although longer payment terms may be agreed, provided that they are not grossly unfair to the supplier. To make the voluntary code mandatory without further appropriate modification would in effect set maximum payment terms for large companies when contracting with smaller suppliers.

I understand that it might seem desirable but, while setting limits on the maximum legal payment terms might address the problem of lengthy payment periods in some commercial contracts, we believe the disadvantages of a one-size-fits-all approach are of greater significance.

I thank the noble Lord, Lord Stevenson, my noble friend Lord Bourne and others for raising their concerns on the need for directors to continue to act in good faith when wrongful trading liability is suspended. Let me reassure them and other noble Lords who raised this point that directors will still be obliged to comply with their normal duties, as clearly set out in the Companies Act. Other remedies will remain available where directors do not meet acceptable standards of behaviour, such as fraudulent trading provisions. I therefore hope that noble Lords will agree that, with these provisions stated elsewhere, putting them in the Bill is unnecessary.

I pay tribute to the noble and learned Lord, Lord Hope, for raising an important point on the role of the court, as mentioned in Clause 10, in relation to wrongful trading. Let me reassure him that the wording of the clause is sufficient to direct the court to make an assumption. It does not invite an argument to the contrary. The noble and learned Lord may be aware of similar provisions elsewhere in insolvency legislation which create the possibility of rebuttal. For example, where a preference payment is made by a company, which may be clawed back by a liquidator, and the recipient is a connected party, it is presumed to have been made with the intention of putting the recipient in a better position in the event of insolvency “unless the contrary is shown”. The last part of that provision creates the opportunity for rebuttal, and Clause 10 does not use such language.

The lack of transparency of pre-packs was raised as a concern by a number of noble Lords, including the noble Lords, Lord Vaux and Lord Mendelsohn, and my noble friends Lord Hodgson and Lady Neville-Rolfe. The Government recognise creditors’ concerns about pre-packs, particularly where the sale is to a connected party. If strengthening of professional standards and the existing regulation do not deliver increased creditor confidence in connected pre-pack sales, the Government will look to bring forward further legislation.

The noble Baroness, Lady Bowles, asked whether Companies House undertakes scrutiny of information submitted during this emergency. The register of companies is continuously under scrutiny. It was accessed more than 9.4 billion times in the financial year 2019-20. With so many eyes viewing the data, any errors, omissions or worse can be identified and reported. Companies House undertakes numerous checks on the validity of information, both at incorporation and throughout the life of the company as new information is submitted. Companies House will continue to be vigilant during the current period. Compliance with the extended deadlines is still expected, and the existing offences and penalties for late filings, as set out in the Companies Act 2006, will continue to apply.

In addition, my noble friend Lord Wei asked whether late filings should be reflected in the credit rating of a company. This is already the case. Extending the filing deadline will therefore ensure that filings are not classified as late. This will help directors to focus on managing their businesses without being diverted by credit rating changes based on temporary practical impediments to filing while the Covid-19 restrictions apply.

The noble Lord, Lord Vaux, the noble Baroness, Lady Burt, and my noble friend Lord Blencathra raised concerns regarding small suppliers once termination clauses are prohibited. We think it right to give a temporary exemption to small companies at a time when many are suffering due to the pandemic. I entirely understand and sympathise with noble Lords’ concerns and the desire to assist small companies; the intention is to do so for as long as necessary in the current economic climate. I assure them that if the protections are needed beyond their present expiry date, they can be extended by statutory instrument. In addition, we have built in numerous protections for suppliers who are required to continue supplying a company during a moratorium or other insolvency procedure, including allowing suppliers to apply to a court for permission to terminate a contract if continuing supply would cause them hardship.

My noble friend Lord Dobbs mentioned the need for the moratorium to run beyond 20 business days. The initial moratorium period of 20 business days can be extended by the company by a further 20 business days, and further extensions beyond that can also be made with creditor or court approval.

On timing, the noble Baroness, Lady Falkner, asked whether there was a limit to the number of times a moratorium could be extended. While creditors can agree to extend a moratorium a number of times, they cannot agree cumulatively to extend beyond one year. A court may extend beyond one year but, when doing so, it must consider the interests of pre-moratorium creditors and the likelihood that the extension will lead to a rescue of the company.

During the debate, we have heard several questions about moratoriums, including from my noble friends Lord Hunt, Lord Flight and Lady Altmann. I assure the House that the qualifying condition of entry into a moratorium is that it is likely that the moratorium will result in the rescue of the company. This will be assessed by the proposed monitor of the moratorium prior to their agreeing to take the appointment.

On the lack of a requirement to seek support from the secured creditors, the moratorium will enable companies to act early, which we hope will increase the chance of a successful rescue. For unsecured creditors, the new moratorium can be accessed only if the company is likely to be rescued as a going concern in the opinion of an insolvency practitioner. Where a rescue is achieved via the moratorium, all stakeholders of a business, including secured creditors, will benefit.

On her point about individual bankruptcy, I assure my noble friend Lady McIntosh that the Government recognise fully the impact of Covid-19 on individuals. We will continue to monitor the situation as a whole and consider whether further measures are needed. Credit card companies and other lenders have been required by the Financial Conduct Authority to offer payment holidays to people struggling to make repayments at this time, and it has issued guidance to lenders about offering mortgage payment holidays and halting repossession actions.

I appreciate the points made by the noble Lords, Lord Stevenson, Lord Mendelsohn, Lord Palmer of Childs Hill and Lord Mann, and my noble friends Lord Hunt, Lady Altmann and Lady McIntosh on insolvency practitioners acting as monitors. Insolvency is a highly regulated profession. Insolvency practitioners are qualified members of a recognised professional body who are required to abide by legislative, professional and ethical standards. There are strict educational and professional competence requirements for becoming a practitioner, and the vast majority are highly professional individuals with a great deal of expertise in insolvency and business rescue. Where an insolvency practitioner fails to comply with required standards, they can be subject to disciplinary sanctions by their authorising body, which, in the most serious cases, can involve them having their authorisation to practise withdrawn. I hope that this goes some way to alleviating noble Lords’ concerns.

As the noble Lord, Lord Blunkett, rightly said, the role of insolvency practitioners is positive rather than negative. They can offer professional advice to companies on the best options available and may help businesses to avoid insolvency where appropriate, as well as ease the process where it is inevitable.

The noble Baroness, Lady Jones, spoke about the green recovery. My department is committed to a recovery that is as green as possible, and it is of course responsible for energy and for COP 26.

I turn to the point raised by my noble friend Lady Anelay about charities and the impact that the Bill will have on that sector. As my noble friend said in her contribution, it is important to listen to those closest to the third sector. Colleagues at the Department for Digital, Culture, Media and Sport have developed these measures alongside the Charity Commission. The commission has indicated that it will take a proportionate approach where members’ meetings need to be postponed or held virtually in order to comply with social distancing, even if that is contrary to the rules of the charity’s governing document. In such cases, the Charity Commission advises trustees to record their decisions, attendees and the time of the meeting in order to demonstrate good governance of the charity. I hope this will provide some reassurance to my noble friend and to those charities that the regulator will adopt a sensible and flexible approach in the current difficult circumstances.

We have heard a number of concerns about the limited time available to scrutinise the Bill, and I totally accept the points made by many noble Lords. These concerns were rightly highlighted and raised by my noble friends Lord Blencathra, Lord Flight, Lord Shrewsbury and Lord Trenchard. The Bill contains a series of familiar measures; in fact, many of these insolvency measures have been consulted on and refined over many months. Her Majesty’s Government were always seeking to bring forward reform to the insolvency regime that would bring our regime in line with those of other nations with similar economies. Covid-19 has, sadly, made the need for these measures more acute.

The other provisions in the Bill are all temporary. If the Government wish to extend their operation, both Houses will have the opportunity to scrutinise the relevant order. In addition, any regulations made after the Bill will of course be subject to the usual scrutiny.

The noble Lord, Lord Stevenson, asked whether there was no limit to the overall number of times that the temporary measure can be extended. At present, all the temporary insolvency measures will automatically sunset one month following Royal Assent. The Bill contains a provision enabling these temporary measures to be extended by statutory instrument where appropriate. The Government have every intention of making use of that provision if the protections are needed beyond their present expiry date. The maximum time period for which the temporary measures can be extended by statutory instrument is six months and the power to extend can be used more than once, so there is no absolute sunset.

The noble Baroness, Lady Kramer, asked for the Bill to sunset the permanent measures. The permanent provisions have not just been developed in the short time since Covid-19 first appeared; they have been the subject of a considerable period of consultation and engagement dating back to 2015. This 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.

At present, all the temporary insolvency measures will automatically sunset the month after Royal Assent. These measures all have significant impacts on the normal working of various parts of insolvency legislation and the business community, and they will need to be considered and scrutinised by Parliament when determining when the temporary measures should be extended and for how long. The Government also have the power to bring any temporary measures to an early end if they are no longer required.

My noble friend Lord Trenchard also raised a point on the introduction of retrospective legislation. The decision to make certain aspects of the Bill retrospective has been taken for specific policy reasons. For example, in the case of the suspension of wrongful trading, retrospection takes effect at the time the Covid-19 emergency began, rather than when the Bill is enacted.

I thank the noble Lords who raised the use of Henry VIII powers. I thank the chair of the Delegated Powers and Regulatory Reform Committee, my noble friend Lord Blencathra, for his comments on these powers. We all look forward to receiving the committee’s report on the Bill, which I think is due tomorrow. The Bill contains powers to enable its provisions to be adapted to different types of corporate body or bodies subject to special insolvency procedures, as well as to ensure that the detail of the procedures can be amended in the light of these reforms. Delegated powers are also included to extend the temporary provisions should it prove necessary and to make other temporary amendments to insolvency law to deal with the effects of Covid-19 where needed.

The noble Baroness, Lady Northover, raised a point about impact assessments on the Bill’s measures. The impact assessment estimates that the three permanent changes to the UK insolvency framework will result in net benefits totalling over £1.9 billion in today’s prices. The equivalent annual net direct cost to business of the three permanent changes to the UK insolvency framework is estimated to be minus £222.9 million. In other words, we estimate an overall £222.9 million annual net benefit.

I will respond to the point from the noble Lord, Lord Fox, about WUPs and the Covid test: how, in this climate, the creditor will be able to show that the test has been met, and whether it is to be fleshed out by the courts. Whenever legislation creates a new legal requirement, it will of course be for the courts to consider how the test should be applied in individual cases. Indeed, this measure is no different. The test of whether Covid-19 has caused the company’s difficulties is indeed intended to present a high bar. The measures in respect of statutory demands and winding up petitions are intended to temporarily enforce the forbearance from creditors that the Government have called for.

I will be happy to meet the noble Lord to discuss trade credit insurance. He also asked about what happens if directors do not co-operate with the monitor. The legislation enables the monitor to bring the moratorium to an end if the directors fail to comply with the rules. These include providing information requested by the monitor and paying certain debts due during the moratorium period.

In closing, since 23 March this country has faced unprecedented hardship as a result of the stringent social distancing measures necessitated by the Covid-19 pandemic. As noble Lords are all aware, UK businesses have been hit hard as a result, with many unable to trade or facing a significant reduction in demand for their goods and services. Consequently, many otherwise viable companies face the threat of insolvency.

The Government are committed to doing all we can to support businesses during this challenging time to ensure that they can bounce back once the pandemic is over. The measures introduced by the Bill offer vital support alongside the substantial fiscal support packages for businesses and workers already in place. It is crucial that these measures are brought forward as a matter of urgency to protect those businesses. They will provide the flexibility and breathing space needed by businesses large and small to ensure their survival now and as the country emerges and rebuilds from this crisis.

Lord Callanan

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Yes, of course. I would be very happy to do so.

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.

Lord Callanan

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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 Callanan

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I thank all noble Lords for their contributions on this group. I will make a few general comments before I look at the detail of the amendments tabled.

I shall comment first on what I thought was the most important contribution to the proceedings, which of course was the noble Lord, Lord Mann, making a football analogy, which is more important than this legislation. I joke, of course, because it is not, but many of us are looking forward to the recommencement of the Premier League season tomorrow. I suspect that we support different clubs, but nevertheless I am sure that we will both welcome the resumption of football. The serious point is that many of these provisions will apply to football clubs. We hope, as is the purpose of this legislation, that it will enable any of them which are struggling to be saved. The Government have already announced a substantial package of aid and support for many businesses, including football clubs; I think that the Premier League has announced a package of £125 million that is to go to other clubs. We welcome that, and of course many clubs have taken advantage of our other business support measures.

The noble Lord, Lord Howarth, asked why there are so many delegated powers and Henry VIII provisions in the Bill. It is important to address this issue directly. We introduced new procedures to help companies in financial difficulties, in particular the moratorium which we debated earlier, and the new restructuring arrangements, and there are considerable powers to enable these provisions to be reviewed and adjusted if necessary. This point was recognised by the noble and learned Lord, Lord Thomas, and I am grateful for his support. Insolvency legislation is indeed very complex. The Bill has been drafted at pace to respond to the Covid-19 emergency and it contains powers to enable its provisions to be adapted to different types of corporate body or bodies which are subject to special insolvency procedures. It will also ensure that the detail of such procedures can be amended swiftly in the light of these reforms.

My noble friend Lord Blencathra opposed the Question that Clause 1 should stand part, in order to facilitate a wider debate on the Bill’s delegated powers. I know that he wishes to understand the Government’s position across the amendments related to delegated powers and I hope to be able to respond to his points throughout my response. I note that many of these amendments have been drawn from the report on the Bill by his committee. The Government are carefully considering that report, which we received following Second Reading. I have considered the report and I have listened carefully to the views of noble Lords throughout the debate.

My noble friend Lady Neville-Rolfe opposed the Question that Clause 39 should stand part of the Bill. I will explain. The clause enables the Secretary of State to make regulations either to extend or to curtail the periods during which the temporary provisions in the Bill operate. This is important to ensure that the temporary provisions are not in place for longer than necessary, but also that they do not expire at a time when they are still needed to protect the economy from the impact of the coronavirus emergency. Clause 40 makes similar provisions for Northern Ireland. Clause 41 ensures that where regulations are needed urgently as a result of the insolvency measures being introduced by this Bill, they can be made using the negative procedure for a six-month period after commencement. I therefore commend that these clauses stand part of the Bill.

I turn now to the amendments which seek to remove the powers to make secondary legislation conferred on the Secretary of State in relation to the moratorium. These powers enable the Secretary of State to amend, for example, definitions, defined lists and the circumstances in which the monitor can bring the moratorium to an end. In our view, these powers are required because in the future, it is possible that the Government may wish to address any unforeseen issues efficiently to ensure that the conditions for entry into a moratorium remain fit for purpose and to keep definitions up to date as new activities and entities come within the relevant regulated regimes.

Amendment 52, tabled by the noble Lord, Lord Stevenson, seeks to remove the power conferred on the Secretary of State to amend the list of exclusions set out in Schedule 4ZZA. The Government must retain this power in order to be able to react quickly to evolving situations in business and the financial world and to maintain legal certainty. Without the ability to do this, there is a risk that the Government would not be able to keep pace as new firms or types of contract emerge.

Amendment 62 would require the Government to review the impact of certain measures in the Bill on the High Court and to publish a plan to ensure that judges are appropriately trained in their implementation. I hope that it will reassure noble Lords if I confirm that we have engaged extensively with the judiciary in the course of developing these measures with the aim of ensuring that the impact on the courts is minimised. As always, the Government are extremely grateful to members of the judiciary for sharing their insights into these matters.

Lord Callanan

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We will, of course, issue a formal response to the DPRRC report, hopefully by Friday—but, since Report is next Tuesday, we will need to act more swiftly than that in terms of considering amendments. However, as I have said, I have listened carefully to the points that have been made.

Lord Callanan

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I thank all noble Lords for tabling amendments on this important topic. I first clarify to the noble Lord, Lord Lennie, and others that I thought it would be helpful to email noble Lords last night to inform them of my intention to table an amendment on Report because, under the new procedures, I was not able to stand up at the start of this grouping to tell people in advance. I thought it would be helpful to give people advance notice of this to stop them asking for all the things that we were going to do anyway. I thought that it might have played some part in curtailing the debate on this.

I start by reminding the House that both the moratorium and the restructuring plan are not insolvency events—they are company rescue procedures. Where the company itself can be saved as a going concern, obviously, the returns to all creditors and stakeholders of the company will be better.

I turn specifically to Amendment 20 for Great Britain, tabled by the noble Baroness, Lady Drake, and others, and Amendment 39 for Northern Ireland. I do understand the intentions behind these amendments. However, removing financial services contracts from the list of liabilities for which a company does not have a payment holiday when it enters a moratorium would mean that the company does not have to pay these liabilities during the moratorium.

The purpose of excluding these contracts from the payment holiday is to ensure that the moratorium does not affect existing financial services legislation or the operation of the financial markets, and that financial markets participants continue to have legal certainty to facilitate the efficient functioning of those markets. Not excluding them could have potentially severe consequences for the operation of the markets and, in turn, the stability of the financial system and the availability and cost of these products.

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, as I said on the last grouping, where they are a creditor to a company in distress so that 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 these firms to continue to provide finance. That could leave companies in financial difficulty in a far worse-off position than they would otherwise be.

I understand the purpose of these amendments, and the concerns that many noble Lords raised during this debate and at Second Reading on the super-priority of financial services debts in the moratorium. In discussions with the various stakeholders, it has become clear that unpaid financial services debts that have been accelerated for payment during the moratorium receive this super-priority status. We would not want this to provide an incentive for financial services firms to jeopardise the rescue of businesses during a moratorium by accelerating financial services contracts for payment, so as to benefit from this super-priority of their debt in a subsequent insolvency. I will therefore table an amendment on Report to address this issue, and I thank noble Lords who have raised it with me.

I turn to Amendments 27, 63, 64 and 118. Again, I understand the intentions of these proposals. We can all agree that recent high-profile insolvency cases that featured large deficits owed to the defined benefit pension scheme were worrying. We all recognise the uncertainty that this brings for employees, both past and present, in such cases. Again, I assure the Committee that the Government recognise the need for safeguards around these pension schemes and have been working closely with key stakeholders over the last few weeks on these issues. We have reflected on the concerns raised, so I confirm that it is our intention to table amendments on Report to ensure a greater role for the Pension Protection Fund and that pension protection is made clear in the Bill. Again, I am grateful to noble Lords for their engagement on this issue. Both the amendments that I have mentioned will be tabled tomorrow to give noble Lords the opportunity to study them in advance of Report.

Let me address some of the points made. Initially, the noble Baroness, Lady Drake, and I think the noble Lord, Lord Fox, asked—he may not have done so—whether pension schemes can be crammed down. The protections that apply generally will cover a pension scheme included in a restructuring plan proposal. There are strong protections, including a high threshold for class support of 75%, and where cross-class cram down is requested and none of the members of a dissenting class are worse off than they would have been under the next most likely outcome. Importantly, even if all the statutory requirements are met, the court can refuse to sanction a restructuring plan if it is fair and equitable for it so to do.

My noble friend Lady Altmann and, on this occasion, the noble Lord, Lord Fox, asked about the debt priority of pensions and whether the current ranking is appropriate. When insolvency occurs, there is a balance to be struck in considering the order in which those owed money are paid out of the available assets. There are seldom enough funds to pay all creditors in full in an insolvency. To ensure fairness, the law requires that available funds be distributed in a certain order. Unsecured creditors are paid once the secured creditors and preferential debts, which of course include employees’ hard-earned wages and salary, have been dealt with; they share the funds that are then left over. Any deficit owed to a pension scheme ranks alongside all other unsecured creditors, which will inevitably include trade suppliers, some of which will be small and micro companies. I confirm to the noble Lord that this legislation has not changed the existing provision and that it carries on.

With those explanations, and with the notice I have given of the proposed government amendments on Report, I hope that I have provided sufficient justification for the noble Baroness to withdraw her amendment.

Lord Callanan

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Without giving a specific commitment about Thursday, because I have a number of things in my diary, not least because I am answering further Questions in this House, I will attempt to ensure that the forum mentioned by the noble Baroness takes place before Report. Noble Lords who take an interest in this matter will get the opportunity to talk to me and the various Bill officials who are handling what is, I am sure she will accept, a complicated area of law.

Lord Callanan

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My Lords, these are a number of technical amendments tabled by the Government in my name to ensure that financial collateral arrangements, charges and securities are carved out from the effects of the moratorium. This is part of the Government’s intention to exclude certain financial services contracts from the moratorium.

I am conscious that time is getting on. I have an extensive speaking note and I can go through it in great detail if noble Lords wish me to do so, but it probably best serves the interests of the Committee if I stop at this point and let noble Lords who wish to contribute on this matter come in. I can respond at the end, rather than go through a lot of technical detail that might not be of interest to those present. That might be to the benefit of the Committee, given the late hour and the fact that we are pressed for time.

Lord Callanan

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I am grateful for the patience of noble Lords. I propose to deal with the points raised by the noble Lord, Lord Mendelsohn. As for the technical amendments talked about by the noble Lord, Lord Fox, and other noble Lords, if it is acceptable to them, I shall write to them with the details of what we are proposing and how we propose to do it—soon, as the noble Lord, Lord Fox, reminded me. I shall get an email out to them as quickly as possible which I hope will resolve their issues, but there are no issues of principle or policy involved, since these are simply technical amendments that I think reflect the reality that the Bill, and the many temporary provisions, were drafted at pace. It is a long and complicated Bill and these issues have arisen that we wish to correct.

The noble Lord, Lord Mendelsohn, asked about the reporting structures through which the effectiveness of the measures in the Bill can be monitored. I can tell him that the Insolvency Service has for many years published quarterly national statistics, covering both corporate and personal insolvency, approximately four weeks after the end of the quarter. In response to the pandemic, the Insolvency Service now additionally publishes monthly official statistics, covering corporate and personal insolvency, approximately two weeks after the end of the month. Data on the use of company moratoriums and flexible restructuring plans will be published regularly, either by the Insolvency Service or by Companies House through their existing schedules of national and official statistics. Under the Better Regulation framework, the Government are required to publish a post-implementation review of all these measures not more than five years after commencement and the Insolvency Service is currently considering its plans for monitoring and evaluation. We will, of course, publish further guidance as needed.

With that—and I am grateful for the patience of the Committee, I know that time is getting on—I beg to move.

Earl Howe (Con)

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My Lords, I thank the noble Lord, Lord Fox, for tabling these amendments. As he said, they seek on the one hand to time-limit the period within which the moratorium provisions are in force and require a review of the operation of the provisions to be carried out, and, on the other hand, to limit the ability to extend the sunset date of the powers to make temporary amendments to insolvency and related legislation in Clauses 18 and 26. Here, I am referring to Amendments 68, 69 and 74, which I will cover as they are in this group.

I shall start with the moratorium. As the noble Lord knows, the point of this measure is to give financially distressed companies breathing space from their creditors so as to pursue a rescue or restructure. It forms part of a package of rescue tools in the Bill that will help ensure that viable companies do not fail, thereby saving businesses and jobs. This new procedure will of course be useful during the Covid-19 pandemic but it will also have a longer-lasting benefit to the economy after this period. Therefore, making this measure temporary will serve little purpose. Doing so would, instead, create uncertainty. I ask the noble Lord how a financially distressed company could conduct its rescue planning without some assurance that the restructuring tools would still be available after a certain point in time.

All the permanent provisions contained in the Bill, including the moratorium, have not just been developed in the short time since Covid-19 first appeared; rather, they have been subject to a considerable period of consultation and engagement dating back to 2015. This process included the then Government’s review of the corporate insolvency framework public consultation in 2016 and, since then, there has been an extensive period of engagement with a wide range of stakeholders. The measures have been developed and refined over several years against a backdrop of strong calls to introduce them as early as possible to ensure that the UK keeps pace with restructuring reforms introduced in a number of other jurisdictions and to ensure that we remain one of the top restructuring hubs in the world.

Furthermore, I assure the noble Lord that the Government take their role in reviewing legislation very seriously. We will monitor information and feedback from stakeholders and the industry on the effectiveness of the new insolvency procedures generally. In due course, we are likely to want to commission a more formal evaluation of the impact, and a post-implementation review will be conducted in line with Better Regulation guidance. However, it will be important to ensure that the new measures have sufficient time to bed in before doing so.

Turning to Amendments 68, 69 and 74—which, I dare say, my noble friend Lady Neville-Rolfe would have introduced but the noble Lord, Lord Fox, has his name attached to them—I am grateful to both noble Lords for bringing up the matter of the sunsetting of the powers to make temporary changes to insolvency and related legislation in Clauses 18 and 26. As the Bill stands, those powers 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 the power to extend can be used more than once. The amendments would either remove the powers to extend the expiry date, which would mean that the powers in Clauses 18 and 26 would sunset for ever on 30 April 2021, or would limit the power to extend so that it would expire two years after this Bill received Royal Assent at the latest.

I hope that it is helpful if I reassure the noble Lord and my noble friend in her absence that the purposes for which the Clause 18 and Clause 26 powers may be used are tightly circumscribed and very specifically set out in the Bill in the clauses that immediately follow in each case. These include helping to reduce the number of entities being forced to use corporate insolvency proceedings and mitigating the impact of Covid-19 on those proceedings, as well as the duties of persons with corporate responsibility.

The problem here is that we just do not know the long-term impact of this dreadful pandemic on business and insolvency, and we need to be able to move quickly to meet as yet unknown and unidentified challenges. Some of these may not become apparent for several months, so for the power to be most effective it must be capable of being extended.

Extension of the expiry date of 30 April 2021 may be made only after proper consideration and scrutiny by Parliament using the affirmative procedure. I hope that the noble Lord will agree that the existence of that parliamentary hurdle is not insignificant and will prevent the power continuing indefinitely if it is no longer needed.

So, for the reasons I have set out, I am not able to accept this group of amendments. I therefore hope that the noble Lord, Lord Fox, will agree to withdraw Amendment 38 and in due course will not press the other amendments in the group.

Earl Howe

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My Lords, I am most grateful to noble Lords for these amendments, which seek to extend the period of time that the range of temporary measures contained in the Bill will continue to operate. The temporary measures contained in the Bill are all necessary to ensure that otherwise viable companies are given the space to recover, if that is possible. I entirely understand noble Lords’ desire to ensure that the measures continue for as long as they are needed. As I am sure they appreciate, the Bill contains provisions enabling these temporary measures to be extended, and I can reassure them that the Government have every intention of making use of this provision if the protections are needed beyond their present expiry date.

The temporary measures all have significant impacts on the normal working of various parts of insolvency legislation and the business community. The point that needs to be made here, though, is that the term of extension for one measure may not be desirable, or needed, for another. We therefore think it is right that any consideration of an extension, and for how long, should be done on an individual basis rather than in the round, taking into account all the circumstances and potential impacts.

My noble friend Lord Hodgson’s amendment is slightly different from the other amendments in this group, in that it would extend backwards the period to which restrictions on winding-up petitions and orders apply, to include circumstances where petitions were filed after 23 March 2020, when lockdown began. As currently drafted, the restriction on winding-up petitions applies retrospectively from when the Government announced their intention to legislate. It seeks to avoid unfairness by ensuring that the restriction on winding-up petitions applies only in cases where the person presenting the petition would have known of the Government’s intention to legislate in this area. I hope my noble friend will agree, on reflection, that it would not be appropriate to place such a requirement on anyone before they could have known about it. That is why we have chosen to apply the provisions in respect of windings up from 27 April 2020—the next working day following the Government’s announcement of the change in policy.

I will write to the noble and learned Lord, Lord Wallace of Tankerness, and the noble Lord, Lord Howarth, in answer to their questions on retrospection, but for the reasons I have set out, I am not able to accept these amendments. I therefore hope that the noble Baroness, Lady Barker, will feel able to withdraw her Amendment 47 and that, in due course, the other amendments in the group will not be moved.

The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)

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I thank and pay tribute to my noble friend Lord Hodgson for ably introducing this grouping and speaking so powerfully on this subject. In fact, such is the power with which he speaks that when he spoke, claps of thunder echoed around the Chamber. We do not have any of our right reverend Prelates here to advise us, but perhaps my noble friend’s amendments have support from authorities even higher than those in this House. I am also grateful to the noble Lord, Lord Vaux, for speaking so eloquently on this topic, and grateful to him, my noble friend and the noble Lord, Lord Mendelsohn, for the time that they made available for us to discuss these issues in the last couple of weeks.

At the risk of further increasing my noble friend’s blood pressure, I say to him that the measures in the Bill are indeed intended to help companies to maximise their chances of survival during the Covid-19 emergency, to protect jobs and support the recovery of the economy. That is why other measures, which would not necessarily alleviate the impact of the current emergency, have not been included in the Bill.

I will reply also to the points from the noble Lords, Lord Adonis and Lord Mendelsohn. The Pre Pack Pool wrote to me on this subject a few weeks ago, and I responded on 29 May. I understand its concerns; officials will be meeting the pool and the Insolvency Service to take forward the discussions and the concerns that it has rightly raised.

I also see that the Small Business, Enterprise and Employment Act 2015 has provided some inspiration for these amendments, which would require mandatory reference to the aforementioned Pre Pack Pool. Aside from specific considerations as to whether a requirement for a positive opinion from the pool might conflict with the strategy duties of the administrator, I would be concerned that the amendment might impose an additional burden on businesses at this difficult time. Furthermore, as my noble friend Lord Hodgson reminded us, the Pre Pack Pool operates as a limited company, and I ask whether it is right to restrict the required opinions to one source of supply.

There are already legislative and professional regulatory requirements in respect of pre-pack sales. When deciding whether to go ahead with any sale in administration, the administrator is required to take into consideration the statutory objectives of administration, which include rescuing the company as a going concern and achieving a better result for creditors as a whole. The administrator must also send a detailed narrative explanation to creditors, justifying why a pre-pack sale was undertaken. That is sent to the administrators’ regulatory body, which monitors it to ensure that administrators comply with the spirit as well as the letter of this requirement. At Second Reading, I explained that we continue to work with regulators and industry stakeholders to discuss the options for strengthening the professional regulatory requirements. I can tell noble Lords that if that fails to give greater assurance to creditors, we will consider bringing forward further legislation.

For the reasons that I have set out, I am therefore unable to accept these amendments and I hope that my noble friend and the noble Lord, Lord Vaux, will therefore be able to withdraw and not press their amendments.

Lord Callanan

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I do not want to go any further than what I said in my reply. I have been in correspondence with the Pre Pack Pool and we have arranged for officials from my department and from the Insolvency Service to meet with it further to discuss its concerns.

Lord Callanan

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In principle I have no objection to releasing that; obviously, I would need to speak to officials and to the recipients to check whether they are all happy with that. I do not know whether it was sent confidentially basis or whether it is available for publication, but I will certainly look at that.

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.

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.

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.

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.

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.

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.

Lord Callanan

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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 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.

Lord Callanan

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That the Bill do now pass.

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.