Corporate Insolvency and Governance Bill

(Limited Text - Ministerial Extracts only)

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 17th June 2020 Lords Chamber

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, we have had a very good debate on this issue today. It is an accident of the way things went yesterday that we have been given this time, and I am grateful to the House authorities for allowing us to spend some time on this important topic.

The noble Lords, Lord Hodgson and Lord Vaux, gave brilliant exposés of why pre-packs are causing more harm than good, as they put it, although both were valiant in suggesting that it remained on the agenda or was a “valuable tool in the toolbox”, which was another phrase used, although the noble Lord, Lord Hodgson, said that it has been a very loose end recently. Increasingly, perhaps we need to think hard about how this should go forward.

Like my noble friend Lord Mendelsohn, I have had an interest in pre-packs since we were involved in the quite intensive discussions on the small business Act in 2015. Like him and many people, I regret that the power that was inserted into that Act has lapsed, because that seems a missed opportunity and we should be thinking hard about how that might go. Perhaps when the Minister responds he could explain again why he thinks that the amendment in the name of the noble Baroness, Lady Neville-Rolfe, should not be brought forward again. It seems that it would give him the powers that he might need in the future to take action.

The key issue here is not whether the pre-packs will continue to cause trouble but the damage that they might do to the Bill. I hope that the Minister will recall that, when we had our first meeting on the Bill and we were going through some of the main issues, I raised the question of whether the Bill would have an impact on pre-packs and vice versa. The answer I got was that, in the view of the drafters of the Bill, it would not materially have an effect one way or another. However, the evidence we have heard today suggests that that is not the case. Although the Teresa Graham report of a few years ago and its suggestion of a pre-pack pool has been working reasonably well in practice, it is still a voluntary scheme, as was picked up, and if it is indeed rewarding the good guys but not catching the bad ones, the Government are on notice to do something about that. Additionally, if the Pre Pack Pool itself falls into desuetude, obviously a major issue is looming.

The amendments here are very much autonomous, and it has been a useful debate. Of course, if they were accepted, they would effectively be saving a bad system and not introducing good regulation. As the noble Baroness, Lady Altmann, said, we need to think about a mandatory approach here. When the Minister responds, we will be looking for guidance from him about whether this is the opportunity to do so. Would he be prepared to reconsider his initial view on the amendment proposed by the noble Baroness, Lady Neville-Rolfe, to give powers back to the Government to act if they are required, or will we have to seek another opportunity?

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

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 Vaux of Harrowden [V]]

In his response, the Minister did not answer the question of whether he believes that the Pre Pack Pool is useful, sustainable on a voluntary basis, and whether it matters if it ceases to exist. Could he answer that now?

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[Lord Callanan]

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 Adonis [V]]

Could Members of the Committee see before Report the letter of 29 May sent in reply to the pool, which the Minister mentioned?

[Lord Callanan]

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.

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Moved by

[Lord Callanan]

89: Schedule 2, page 104, line 15, at end insert “, and
(b) a master agreement for securities financing transactions.”Member’s explanatory statement
This amendment provides for a master agreement for securities financing transactions to be a “contract or other instrument involving financial services” for the purposes of new section A18 of the Insolvency Act 1986.

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Moved by

[Lord Callanan]

97: Schedule 4, page 122, line 39, leave out “Act” and insert “Schedule”
Member’s explanatory statement
This amendment changes the definition of the “relevant period” so that the term is defined by reference to the coming into force of the Schedule rather than by reference to the coming into force of the Act as a whole.

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Moved by

[Lord Callanan]

101: Schedule 6, page 154, line 10, at end insert “, and
(b) a master agreement for securities financing transactions.”Member’s explanatory statement
This amendment provides for a master agreement for securities financing transactions to be a “contract or other instrument involving financial services” for the purposes of new Article 13D of the Insolvency (Northern Ireland) Order 1989.

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Moved by

[Lord Callanan]

106: Schedule 8, page 166, line 12, leave out “Act” and insert “Schedule”
Member’s explanatory statement
This amendment changes the definition of the “relevant period” so that the term is defined by reference to the coming into force of the Schedule rather than by reference to the coming into force of the Act as a whole.

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Moved by

[Lord Callanan]

123: Schedule 9, page 189, line 17, leave out “24(1) (insolvency)” and insert “24 (insolvency)—
(a) in sub-paragraph (1)”Member’s explanatory statement
This amendment makes a consequential drafting change as a result of the insertion of a second amendment to paragraph 24 of Schedule 17A to the Financial Services and Markets Act 2000.

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Moved by

[Lord Callanan]

133: Schedule 12, page 221, line 25, at end insert “and
(b) a master agreement for securities financing transactions”Member’s explanatory statement
This amendment provides for master agreements for securities financing transactions to be excluded from the operation of new section 233B of the Insolvency Act 1986.

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Moved by

[Lord Callanan]

138: Schedule 13, page 227, line 35, at end insert “and
(b) a master agreement for securities financing transactions.”Member’s explanatory statement
This amendment provides for master agreements for securities financing transactions to be excluded from the operation of new Article 197B of the Insolvency (Northern Ireland) Order 1989.