Corporate Insolvency and Governance Bill
Wednesday 3rd June 2020
(3 years, 10 months ago)
Commons ChamberCorporate Insolvency and Governance Act 2020 View all Corporate Insolvency and Governance Act 2020 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 3 June 2020 - (3 Jun 2020)
The Chairman of Ways and Means (Dame Eleanor Laing)
Before I ask the Clerk to read the title of the Bill, I should explain that, in these exceptional circumstances, although the Chair of the Committee would normally sit in the Clerk’s chair during Committee stage, in order to comply with social distancing requirements I will remain in the Speaker’s Chair, although I will be carrying out the role not of Deputy Speaker but of Chairman of the Committee.
Clause 1
Moratoriums in Great Britain
Lucy Powell (Manchester Central) (Lab/Co-op)
I beg to move, amendment 1, page 3, line 24, after “debts,”, insert—
“(da) a statement on behalf of any trade union made on behalf of employees affected by the proposed rescue of the company as a going concern,”
This amendment would include trade union views among the relevant documents which must accompany an application by the directors of the company to the court for a moratorium.
The Chairman of Ways and Means (Dame Eleanor Laing)
With this it will be convenient to consider:
Amendment 2, page 4, line 38, at end insert—
“(2A) For small businesses, in this Chapter, the initial period, in relation to a moratorium, means the period of 30 business days beginning with the business day after the day on which the moratorium comes into force.”
This amendment would extend the moratorium for small business from 20 days to 30 days for businesses facing insolvency.
Clause stand part.
Clauses 2 to 9 stand part.
Amendment 3, in clause 10, page 63, line 21, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period since 1 March 2020 during which a court in Great Britain is to assume that a person is not responsible for any worsening of the financial position of the company or its creditors that has occurred, following the onset of the coronavirus pandemic.
Clause 10 stand part.
Amendment 4, in clause 11, page 64, line 46, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period since 1 March 2020 during which a court in Northern Ireland is to assume that a person is not responsible for any worsening of the financial position of the company or its creditors that has occurred, following the onset of the coronavirus pandemic.
Clauses 11 to 12 stand part.
Amendment 5, in clause 13, page 69, line 12, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period since 1 March 2020 during which section 233B of the Insolvency Act 1986 (to be inserted by clause 12 of this Bill) does not apply in Great Britain in relation to a contract for the supply of goods or services to a company where the company becomes subject to a relevant insolvency procedure, and the supplier is a small entity at the time the company becomes subject to the procedure.
Clauses 13 to 16 stand part.
Amendment 6, in clause 17, page 76, line 1, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period since 1 March 2020 during which Article 197B of the Insolvency (Northern Ireland) Order 1989 (to be inserted by clause 16 of this Bill) does not apply in Northern Ireland in relation to a contract for the supply of goods or services to a company where the company becomes subject to a relevant insolvency procedure, and the supplier is a small entity at the time the company becomes subject to the procedure.
Clauses 17 to 22 stand part.
Amendment 13, in clause 23, page 79, line 20, leave out “section 18” and insert
“sections (Moratoriums in Great Britain: time-limited effect and renewal), (Moratoriums in Northern Ireland: time-limited effect and renewal), (Arrangements and reconstructions for companies in financial difficulty: time-limited effect and renewal), (Protection of supplies of goods and services: time-limited effect and renewal) and 18”
This amendment allows the Secretary of State to make consequential, incidental or supplementary or transitional provision or savings (including modifying the effect of this Act or any other enactment, making different provision for different purposes and binding the Crown) in connection with NC6, NC7, NC8 and NC9.
Clauses 23 to 47 stand part.
New clause 1—Ring-fence for unsecured creditors—
“(1) Section 176A of the Insolvency Act 1986 is amended as follows.
(2) After subsection (2), insert—
‘(2A) The prescribed part of the company’s net property available for the satisfaction of unsecured debts shall not be less than 30 per cent.’”
This new clause inserts into section 176A of the Insolvency Act 1986 a requirement that at least 30 per-cent of the proceeds from the sale of assets of businesses (after the deduction of the amounts owed to preferential creditors and the fees/expenses of the insolvency practitioners) in administration and liquidation shall be ring-fenced for payment to unsecured creditors.
New clause 3—Corporate governance: reforms—
“(1) Before 31 December 2020, the Secretary of State must—
(a) carry out a review of corporate governance;
(b) set out the conclusions of the review in a report;
(c) publish the report; and
(d) arrange for copies of the report to be laid before both Houses of Parliament.
(2) The report under subsection (1) must in particular set out the Government’s proposals for—
(a) ensuring greater accountability of directors in group companies which sell failing subsidiaries;
(b) legislating to enhance powers for insolvency practitioners in relation to value extraction schemes (removal of value from a firm at the expense of its creditors when in financial distress);
(c) further raising standards by ensuring that directors of a company publish regular explanations to their shareholders as to what extent the company can afford to pay dividends alongside its financial commitments such as capital investments, workers’ rewards and pension schemes.”
This new clause paves the way for the introduction of measures proposed in the 2018 consultation on Insolvency and Corporate Governance.
New clause 4— Preference for pension scheme deficits in case of insolvency—
“(1) The Secretary of State, after consulting the Pensions Regulator, may make regulations amending this Act to ensure that contributions owed to pension schemes by a company are treated in the categories of preferential debts under the Insolvency Act 1986 as a priority secured creditor.
(2) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.”
The intention of this new clause is to make pension scheme deficits a ‘priority creditor’ in the event of insolvency and therefore due to be paid before unsecured creditors.
New clause 5—Trade union representation in restructuring process—
“(1) Before 31 December 2020, the Secretary of State must—
(a) carry out a review of the role of trade unions in company restructuring arrangements;
(b) set out the conclusions of the review in a report;
(c) publish the report; and
(d) arrange for copies of the report to be laid before both Houses of Parliament.
(2) The report under subsection (1) must in particular set out the Government’s proposals for ensuring that trade unions representing employees affected by any proposed restructuring are—
(a) provided with all the information made available to the court,
(b) fully consulted by the directors of a company before any application for restructuring is made, and
(c) given the opportunity to contribute to decisions made by the court affecting their members.”
The intention of this new clause is to require mandatory discussion with trade union representatives once a company has entered the restructuring process.
New clause 6—Moratoriums in Great Britain: time-limited effect and renewal—
“(1) Part A1 of the Insolvency Act 1986 (inserted by section 1 of this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).
(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part A1 of the Insolvency Act 1986 should continue to have effect for a specified further period of no more than one year.
(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.
(4) The Secretary of State must keep under review the operation of Part 1A of the Insolvency Act 1986 during the period for which it has effect.
(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”
This new clause would terminate the free-standing moratorium provision for Great Britain on 30 September 2020, subject to temporary renewal for up to one year.
New clause 7—Moratoriums in Northern Ireland: time-limited effect and renewal—
“(1) Part 1A of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (inserted by section 4 of this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).
(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part 1A of the Insolvency (Northern Ireland) Order 1989 should continue to have effect for a specified further period of no more than one year.
(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.
(4) The Secretary of State must keep under review the operation of Part 1A of the Insolvency (Northern Ireland) Order 1989 during the period for which it has effect.
(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament and the Northern Ireland Assembly no later than 15 September 2020.”
This new clause would terminate the free-standing moratorium provision fin Northern Ireland on 30 September 2020, subject to temporary renewal for up to one year.
New clause 8—Arrangements and reconstructions for companies in financial difficulty: time-limited effect and renewal—
“(1) Part 26A of the Companies Act 2006 (inserted by section 7 of this Act and Schedule 9 to this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).
(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part 26A of the Companies Act 2006 should continue to have effect for a specified further period of no more than one year.
(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.
(4) The Secretary of State must keep under review the operation of Part 26A of the Companies Act 2006 during the period for which it has effect.
(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”
This new clause would terminate the new restructuring plan provisions on 30 September 2020, subject to temporary renewal for up to one year.
New clause 9—Protection of supplies of goods and services: time-limited effect and renewal—
“(1) Sections 233B and 233C of the Insolvency Act 1986 (inserted by section 12 of this Act) cease to have effect on 30 September 2020, subject to the condition in subsection (2).
(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that sections 233B and 233C of the Insolvency Act 1986 should continue to have effect for a specified further period of no more than one year.
(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.
(4) The Secretary of State must keep under review the operation of sections 233B and 233C of the Insolvency Act 1986 during the period for which they have effect.
(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”
This new clause would terminate the widening of Ipso facto (termination) clauses in supply contracts on 30 September 2020, subject to temporary renewal for up to one year.
That schedule 1 be the First schedule to the Bill.
That schedule 2 be the Second schedule to the Bill.
That schedule 3 be the Third schedule to the Bill.
Amendment 7, in schedule 4, page 122, line 38, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period after this Act comes into force during which the Secretary of State may by regulations made by statutory instrument provide for any temporary modifications to primary legislation in relation to moratoriums in Great Britain made by Part 2 of Schedule 4 to cease to have effect.
Government amendment 15.
That schedule 4 be the Fourth schedule to the Bill.
That schedule 5 be the Fifth schedule to the Bill.
That schedule 6 be the Sixth schedule to the Bill.
Government amendment 16.
That schedule 7 be the Seventh schedule to the Bill.
Amendment 8, in schedule 8, page 165, line 28, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period after this Act comes into force during which the Department for the Economy in Northern Ireland may by regulations provide for any temporary modifications to primary legislation, or temporary Rules under Article 359 of the Insolvency (Northern Ireland) Order 1989, in relation to moratoriums in Northern Ireland in made by provision made by Part 2 of Schedule 8 to cease to have effect before the end of the relevant period.
Government amendment 17.
That schedule 8 be the Eighth schedule to the Bill.
Government amendments 18 to 25.
That schedule 9 be the Ninth schedule to the Bill.
Amendment 9, in schedule 10, page 203, line 15, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on or after 27 April 2020 on the statutory grounds specified in section 123(1)(a) or section 124 of the Insolvency Act 1986 (that a written demand has not been paid within 3 weeks) where the demand was served during that period.
Amendment 10, page 209, line 36, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on the grounds specified in Part 2 of Schedule 10 to this Bill (except where coronavirus had not had an effect on the company).
That schedule 10 be the Tenth schedule to the Bill.
Amendment 11, in schedule 11, page 211, line 2, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on or after 27 April 2020 on the grounds specified in sub-paragraph (a) of Article 103(1)(a) or Article 104 of the Insolvency (Northern Ireland) Order 1989 Order (that a written demand has not been paid within 3 weeks) where the demand was served during that period.
Amendment 12, page 216, line 25, leave out “June” and insert “September”
This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company in Northern Ireland may not be presented on the grounds specified in Part 2 of Schedule 11 to this Bill (except where coronavirus had not had an effect on the company).
That schedule 11 be the Eleventh schedule to the Bill.
That schedule 12 be the Twelfth schedule to the Bill.
That schedule 13 be the Thirteenth schedule to the Bill.
That schedule 14 be the Fourteenth schedule to the Bill.
Amendment 14, Title, line 3, after “make” insert “temporary”
This consequential amendment clarifies the temporary nature of the Bill’s provisions.
Lucy Powell
As my right hon. Friend the Member for Doncaster North (Edward Miliband) and I have said, we support the principle of the Bill and urge the Government to do more to support businesses, so that they can remain solvent and do not need to use these provisions. I hope the Minister will take the amendments in the constructive way they are meant. I will speak to each of them in turn and set out why we are seeking reassurances or think that the Government should consider changes to the Bill as it progresses. This has been a very truncated process, so we are relying on Ministers’ good will to take on board not just the comments I am about to make but those made on Second Reading, some of which were excellent suggestions.
I will take the self-explanatory amendments first. Amendments 3 to 12 inclusive would extend the time limits of the covid-19-specific provisions in the Bill. We welcome the retrospective nature of the provisions, but as we have discussed with the Minister, we suggest that the Government amend the Bill to extend the time limits for a number of the provisions, as they are insufficient given the prolonged nature of the crisis. Specifically, the suspension of the wrongful trading liability and statutory demands and winding-up petition measures should be extended to the same date as when the AGM and company account filing measures are valid, which is until 30 September.
Clearly, there was a sense from Government when the Bill was being drafted that on 30 June, most things would be back to business as usual. It is now clear that many sectors will not even be partially open for business again by that deadline—I am thinking particularly of hospitality, travel, tourism and the arts and their associated supply chains. They will not even have begun trading by the end of this month, let alone be getting back to any kind of solvency.
Jim Shannon (Strangford) (DUP)
I agree wholeheartedly with what the hon. Lady is saying. In Northern Ireland the start date for the hospitality sector, including hotels, is 20 July, so nothing will even be in place until that time. I am a wee bit disappointed that the Minister has not acknowledged that we should have a six-month extension, maybe even to the end of the year.
Lucy Powell
The hon. Member makes a good point. Businesses that are struggling to keep their heads above water need certainty, and they need to know that the lifeline measures in the Bill will not be pulled from under their feet before they even reach needing them.
The point of the suspension of the wrongful trading provisions is that lots of businesses are effectively trading technically insolvent already through no fault of their own. Just as we have seen Ministers rightly extend the furlough scheme, support for the self-employed and other measures, they should get ahead of this now. Rather than having to spend time on a statutory instrument in only two or three weeks’ time, Ministers could and should take the opportunity to get this done today by agreeing to our amendment.
Amendment 2 would extend the moratorium for small businesses from 20 days to 30 days for businesses facing insolvency. The Federation of Small Businesses has called on Government to extend the moratorium period for small businesses because it does not believe that the 20-day period in the Bill is sufficient. We support that call and ask Ministers to agree to that change.
New clause 2 has not been selected, and we will have a proper look at this in the other place, but we think that the powers of the Small Business Commissioner should be strengthened, as we discussed on Second Reading.
We have long argued for some of the permanent measures in the Bill, particularly in the wake of the Carillion collapse. However, we have some concerns about what has been left out, as I said on Second Reading. There could be unintended consequences in the restructuring proposals that are being put in place that could disadvantage small businesses, employees or other unsecured creditors, such as pension funds. The Minister and I have discussed the issue in private, and it was also raised by a number of Government Members earlier. Given the crisis and the numbers of businesses already struggling, we appreciate the haste in bringing forward the changes, but we are concerned that Members and outside bodies have not had a lot of time to scrutinise the Bill and its implications, so we think the Government could consider having a period for reflection and review.
We have included as amendments a number of omissions from the 2018 consultation. The collapse of Carillion and the consequences for workers, supply-chain businesses and the public were a national scandal and an abject failure of British corporate governance policies. There have been huge repercussions for taxpayers, with unfulfilled contracts, unfinished buildings and thousands of apprentices laid off—the taxpayer had to foot the bill for those failures of corporate governance. There is, rightfully, public anger at the failure to hold people to account for such things. As ever, it seems that in such instances the profits are taken by the private sector, but the public sector foots the bill when the risks have been taken by directors over whom they have no control. Given the economic crisis that we face and the likely recession, it is clear that in the next few months and years we will see more big corporate collapses and failures, so it really is remiss of the Government not to strengthen the corporate governance measures, as they said they would do in 2018. I wish to make it clear, especially because Members raised this earlier, that the measures in our amendment are lifted entirely from the Government’s own recommendations.
Alongside key omissions from the Bill, we have heard from academics, trade unions and other organisations about some of the sweeping powers in the legislation and the fact that there could be considerable scope for the misuse of some measures to disadvantage particular groups. The next set of amendments would seek to safeguard funds for unsecured creditors, protect pension schemes, and protect employees by giving trade unions a voice in any restructuring plans. I urge the Minister to have conversations with the trade unions and to look to add our provision—or a provision like it, as Members from both sides were calling for earlier—to the Bill as it progresses to the other place.
We have concerns about how the restructuring plan will hit employees: many more could be pushed to or around the national minimum wage and lose their rights and their wages, as we are currently seeing with what British Airways is doing. Pension scheme deficits will be left unaddressed and more workers could end up losing out from their pension schemes. If this was not an emergency Bill, we would have had a lot more time to probe Ministers on these issues in a full Committee and to discuss what could be done to strengthen the protections in the Bill.
New clause 1 would insert into section 176A of the Insolvency Act 1986 a requirement that at least 30% of the proceeds from the sale of assets of businesses in administration or liquidation should be ring-fenced for payments to unsecured creditors, who often end up losing out to larger creditors, such as banks. The new clause explores a way for unsecured creditors to be guaranteed some assets so that they do not miss out. The legislation assumes that all creditors are identical and take a hit, but we know that that is not borne out in reality. There is a case for protecting the debts of SMEs and other unsecured creditors up to a specified amount, and that should not be reduced. What assurances can the Minister give that unsecured creditors will not lose out as a result of the Bill—although I know that that is what it is designed to try to achieve—and what mitigation is in place to protect unsecured creditors, who are often in the SME sector?
The intention of new clause 4 is to make pension scheme deficits a priority creditor in the event of insolvency and therefore due to be paid before unsecured creditors. The new clause would require the Government to make pension scheme deficits a priority, meaning that they would be the first in the queue in the event of insolvency and paid before other creditors. That could make employees’ votes count and offer them some protection. It is worth remembering that pension schemes are unsecured creditors in normal circumstances. If the deficit is not addressed by companies, employees face an erosion of their pension rights and their pension value goes down. Our amendment would help them to become a separate class in their own right and not to be subsumed into the amorphous mass of unsecured creditors. Members would be able to vote on any restructuring plan. That way, there would be a clear message to past and present employees. Given the nature of this debate and the number of colleagues from both sides of the House who have raised this issue, I hope that Ministers will look at the matter.
The intention of new clause 5 is to require mandatory discussion with trade union representatives once a company has entered the restructuring process. I understand that US evidence shows that restructuring plans often hit employees hardest, and many of the provisions in the Bill are based on US-European models. Wages can be reduced and employment terms changed. Many employees end up on zero-hours contracts or, as we have seen recently with BA, are sacked and then offered worse terms and conditions when they are re-employed. Pension rights are also reduced, and that could happen in the UK. I am sure that Ministers do not wish that to be an unintended consequence of the legislation, so we hope that the Minister will look at our idea, or a similar idea, and see if it can be introduced in the other place. I hope he can provide reassurance on that, not least because my boss, the shadow Secretary of State, is particularly agitated—and rightly so—about this issue.
I hope that the Minister will consider the amendments in the constructive way in which they are tabled. A number of Government amendments have been tabled, and they seem reasonable. We have not had a lot of time to study them, but I am grateful to the Minister for arranging a briefing with his officials. I look forward to his providing us with a bit more detail and assurance as the Bill proceeds.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
This Bill has been produced with ministerial colleagues, the Bill team, which has worked through weekends, representatives of businesses, consumers, workers, shareholders, investors, insolvency experts and, indeed, after really constructive conversations with Opposition Members from all parts of the House. For all those people, I want to put on the record thanks for the constructive way in which the measure has been introduced.
We have had a good debate and there are a number of issues that we need to explore. I am more than happy to cover as much ground as I can. An amendment on prompt payment was cited on Second Reading, but it was not selected. However, as the Secretary of State has said, we made a manifesto commitment to consult on extending a range of powers to the small business commissioner and to clamp down on late payment. We still plan to consult on doing so to allow the small business commissioner to advocate for and support small businesses. We are keen to capture as many views as possible to ensure that the policy response is the right one. In the light of businesses furloughing staff and of other priorities, we do not believe that consulting now is the right thing to do, but the Government remain committed to the prompt payment code.
Amendment 1 seeks to add a statement from a trade union on behalf of employees to the document that must be filed at court at the commencement of the moratorium. It is important to note that a successful rescue would be of direct benefit to employees, as it would result in jobs being saved. Requiring a statement from the trade union on their behalf alongside statements from the insolvency practitioner and directors would add little to the process. In fact, it might risk publicising the company’s financial problems before the protection from creditor action that a moratorium would bring, making rescue less likely.
Employees benefit from considerable protection in the moratorium, which will not be a bomb shelter for bad employers. As I have set out previously, wages and any redundancy payments relating to a period before as well as during the moratorium should be paid by the company. If it does not pay such amounts the monitor must bring the moratorium to an end. While legal process cannot be begun or continued against the company while it is in a moratorium without the leave of the court, an exception is made for employment tribunal claims and other proceedings between an employer and the worker. For those reasons I have set out, I am unable to accept this amendment and I hope it will not be pressed, but I do value the regular meetings I have with TUC members, a number of whom I will be speaking to tomorrow as part of my regular engagement. I value their input at every stage on employment rights and other issues that fall within my brief.
Kevin Hollinrake
Matters are progressing quickly and it is important to bring forward these measures now, but they do not directly tackle the issues relating to conflict of interest. The Department’s proposal to look for a single regulator could well do that. Will the Minister be prepared to meet me to discuss those measures to see when they might be brought forward in future legislation?
Paul Scully
I welcome my hon. Friend’s intervention. He has spoken at length on this and he has been a champion for that change, and I would be happy to meet him to discuss that further.
Amendments 18, 19, 21, 22, 23 and 25 deal with the Cape Town convention, which is an international treaty that seeks to lower the cost of finance for various high-value, mobile assets, including, importantly, aircraft. I know the sector has been particularly impacted by the unique situation posed by the coronavirus pandemic. The insolvency provisions in the Cape Town convention and the aircraft protocol, which we ratified in 2015, are some of the key provisions that give rise to low financing costs in the airline industry. They provide aircraft creditors with greater certainty that they will be able to take steps to enforce their security if an airline debtor defaults on payments or enters into insolvency. The effect of the provisions in the Bill that the Government are amending would have been to enhance the existing protections afforded to Cape Town creditors by extending those protections beyond what the convention and the aircraft protocol require. That was done to create even greater certainty for creditors and further reduce lending costs within the industry. However, in doing so, the new provisions would also have constrained the ability of a financially distressed airline to restructure without creditor consent, either using existing tools under the Companies Act 2006 or the new restructuring plan procedure that is being introduced by the Bill.
Since the publication of the Bill, we have listened closely to the views of many, including interested stakeholders in the airline sector and the restructuring profession. Both have expressed that these provisions could create a significant hurdle to successfully restructuring a struggling airline. The Government are absolutely aware of the very significant impact that this emergency is having on the airline sector. I am also clear that the overriding aim of the Bill is to make it as easy as possible for affected companies to get the breathing space that they need to weather the impact of covid-19, which clearly applies to the airline sector. Given the extraordinary challenge of the circumstances faced by the sector, the Government have decided to remove the relevant provisions from the Bill, which will retain the ability for an airline to use a scheme of arrangement and a restructuring plan to affect Cape Town creditors’ registered interests without the consent of every individual creditor, provided that the other safeguards of those procedures are satisfied. It is complex and we know that we need to work with the airlines on this and give struggling airlines the ability to successfully restructure.
I turn to amendment 15, which deals with the temporary changes to the moratorium that we are introducing in the Bill specifically for England, Wales and Scotland. I will shortly speak to a corresponding amendment for Northern Ireland. Members of this esteemed House will be aware that one of the things that the Bill is for is to create the moratorium, which is vital to give troubled companies the breathing space, but they face significant risks when seeking to restructure, and creditors can derail rescue plans and cause otherwise viable companies to fail unnecessarily. This adversely affects the interests of the company, its creditors and its employees, as well as the wider economy. Recognising the pressing need for companies to be able to access a moratorium in the face of the immediate impact of this emergency, in addition to the permanent measures, we have also introduced temporary measures to ensure that it is as easy as possible for businesses to access a moratorium in the short term. This is done in schedule 4 to the Bill.
While the schedule 4 temporary measures are in place, it is important that these can be applied consistently to each type of entity that can obtain a moratorium. If eligibility for the temporary measures changed depending on what sort of entity was seeking the moratorium, that would patently not be the case. As drafted, there are two entities for which schedule 4 would not otherwise apply: limited liability partnerships and co-operative and community benefit societies. This amendment would add a small fifth section to schedule 4, consisting of two paragraphs to make limited liability partnerships and co-operative and community benefit societies eligible for the temporary moratorium measures. That ensures that these entities can also be brought within the scope of the schedule and make best use of the breathing space that the measures offer. It ensures that both co-operative and community benefit societies and limited liability partnerships in England, Scotland and Wales will benefit from the temporary measures that we have set out in the schedule, as well as from the wider provisions on moratoriums. There is a corresponding amendment for Northern Ireland. These time-limited and temporary changes will make sure that we best address specific issues for companies during the covid-19 emergency and ensure that the relevant entities are all equally eligible for our temporary measures on moratoriums.
Amendment 17 is related and ensures that the temporary modifications that have been made to the moratorium process can be applied to limited liability partnerships and certain types of registered societies in Northern Ireland. It inserts two paragraphs to the temporary measures in Schedule 8, so it largely mirrors what we see in the previous amendment.
Amendments 20 and 24 are minor and technical amendments, intended merely to make a clarificatory point to ensure that it is crystal clear that at the point when a company proposes a restructuring plan coming out of a moratorium, the company should contact all creditors with an explanatory note of a proposed restructuring.
Similarly, amendment 16 deals with an erroneous repeal of the Northern Ireland provisions. The provision being repealed is still needed, so the amendment rectifies that and I therefore commend it to the House. I turn briefly to one amendment raised by the hon. Member for Manchester Central (Lucy Powell). It seeks to make any pension scheme deficits a priority creditor in the event of an insolvency. I have to say that I can understand where her intentions are coming from in this proposed amendment. I am sure that, in recent years, we can all remember one or two high-profile insolvency cases—we have heard of some today—which feature large deficits owing to the pension scheme, and we can appreciate the uncertainty that that brings.
However, as always, when insolvency occurs, there is a balance to be struck when 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 insolvency cases. To ensure fairness, the law requires that available funds be distributed in a certain order. Secured creditors are paid out first for the sale of any property to which their charges attach. Without that, securities, banks and others who funded business activity would be less likely to do so, or would charge more to cover the increased risks they bear. It is essential that the insolvency system helps to give investors, lenders and creditors confidence to take the commercial risks necessary to support economic growth. Unsecured creditors are paid once the secured creditors and preferential debts, which include employees’ remuneration, have been dealt with, and they share the funds that are left. For limited amounts of unpaid pension contributions, which are preferential, any deficit 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. Therefore, the level of debt owed to a pension company can be very large—we know that. To raise the priority of these creditors and pay them ahead of not only unsecured creditors, but also, as the new clause would seem to suggest, preferential creditors such as employees for unpaid wages and floating charge holders would really upset the balance that has existed for a long time.
New clause 5 seeks a future review of trade union involvement in company restructuring and to commit the Government to specific proposals in spite of what that review might show. It does not seek to amend or improve the debt finance restructuring provisions in the Bill being taken forward as those most needed at this moment in time. The permanent restructuring provisions introduced by the Bill have been 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 public consultation in 2016 and extensive public engagements since then, with a wide range of stakeholders. There were no strong or widely made calls at that time for trade unions to be given a formal role in the new processes proposed. The design of the new restructuring provisions already includes strong protections for employees. For example, a company in a moratorium will be required to continue paying wages and salaries during the moratorium. If they are not paid, the moratorium will have to come to an end.
In addition, the measures allow employment tribunal proceedings to continue during the moratorium, despite the fact that other types of legal processes are to be prevented during the moratorium. In cases where employees are creditors of the company that they are employed by, and so a party to a new restructuring plan in that capacity, they will benefit from the comprehensive set of general creditor protections built into the new measure.
On corporate governance reform more widely, the Government are implementing a number of reforms already enacted that strengthen the voice and interests of employees in company decision making, be they members of a trade union or not.
The Government also intend to put forward a further consultation on audit and corporate governance reform, taking into account the recommendations of three independent reviews of audit, the views of the Business, Energy and Industrial Strategy Committee and a recent industry development, so we do not believe that a separate review is necessary.
At this point, Madam Deputy Speaker, I am not able to accept any of the amendments, apart from the Government amendments that are in my name. I hope therefore that hon. Members will therefore withdraw their amendments.
Imran Ahmad Khan (Wakefield) (Con)
On a point of order, Madam Deputy Speaker. It has come to my notice that certain Members of this House, including well-known Members such as the hon. Member for Brent North (Barry Gardiner), have flagrantly flouted the law and joined the protests outside, boasting that they have broken social distancing measures. I am not going to talk about the legality of this, because that, I presume—I may be mistaken about this—is a matter for the police. What I am discussing here, and what I wish to bring as a point of order, is my concern for the community that makes up this parliamentary estate: the hardworking and dedicated staff, and, indeed, as a subsequent thought, even my fellow Members. I feel that we are going to be placed at risk when there has been such advertised and self-publicised breaking of the law. Vectors of the disease we are fighting, and which the Government are fighting, will be, if he returns to this House, allowed access to spread among the hardworking staff here. Are there measures to prevent such Members, who have flouted the law and are now possibly more likely to be contagious or infected by the disease, re-joining this House until they have undergone a period of self-isolation to ensure that we do not suffer a threat because of their aberrant behaviour?
The Chairman of Ways and Means (Dame Eleanor Laing)
I thank the hon. Gentleman for his point of order. I can well understand his consternation. The behaviour of hon. Members when they are outside this building is, of course, not a matter for the Chair, but what is a matter for the Chair and for Mr Speaker is the safety of Members of this House, of people who work here, and of the many, many people who have continued to work here, through a sense of duty, during these last difficult weeks. It will be obvious to the Committee and to anyone watching our proceedings that Mr Speaker has gone to a great deal of effort to make sure that Members and staff working here are protected. Social distancing rules, as one can see by looking at the Benches and the way in which this entire building is now set out, have been very rigorously developed to make sure that everyone who works in this building, who is here to do their duty, is protected and will not put other people, including their constituents and their families, at any risk.
If any Member of this House is openly flouting the rules that we have asked every citizen of the United Kingdom to observe to keep the virus under control, and to protect the vulnerable and to protect the NHS, then that Member is putting not only himself or herself at risk, but everyone else at risk as well. I hope that the hon. Gentleman’s observations will prove not to have been accurate. I am not suggesting that he would say that they were, but I cannot make any comment until I know the facts for certain. I hope that the facts are not as he has stated them, but if it transpires that the facts are as he has stated them, then it should be incumbent upon anyone coming into this building, if they know that they have put themselves at risk of contracting or passing on the virus, to act responsibly. I thank the hon. Gentleman for his point of order.
We will resume the Committee stage. I was hoping I would have some sort of indication that someone might wish to speak. I call Sarah Olney.
Sarah Olney (Richmond Park) (LD)
Thank you, Dame Eleanor. I was not expecting to be next, but I willingly take my place. I state my intention not to press my amendments, but I would just like to say a few words on why I tabled them.
We are in an emergency situation. The response to coronavirus has been first and foremost a public health response, but the necessary measures taken to contain the spread of this appalling virus, supported by all the hon. Members of my party, have now resulted in an economic crisis. While we look forward to a point where the public health emergency has passed at least sufficiently to allow some semblance of a normal life, the economic crisis is likely to have longer and more far-reaching effects. In my constituency, as in those of every parliamentary colleague I am sure, the most immediate impacts are being felt by our small businesses and the self-employed. If we are to plot the most effective path out of this crisis, it is to our small and growing businesses that we should allocate the most care and attention. Apart from the important role that they play in supporting our communities and providing jobs, the new businesses that will emerge from the current shutdown will be offering the innovative goods and services necessary for a new way of life that we may have to get used to. Our recovery—both physical and economic—depends on the next generation of entrepreneurs, and it should be the first priority of the Secretary of State to identify and support them.
The Liberal Democrats support the temporary measures in the Bill. They are sensible measures that should carry successful businesses through the current crisis until such time as they can thrive again on their own terms. We support them, however, only as temporary measures designed to respond to the specific challenges posed by the current crisis. We oppose the bundling into the legislation of permanent changes to our insolvency and corporate governance processes. Permanent changes should be subject to a greater level of scrutiny and debate. My amendment 14 sought to put all the proposed changes on a temporary footing, able to be renewed, but also allowing the proposed permanent measures to be reintroduced to the House at such time as we may be able to consider and debate them properly.
Introducing the proposals as temporary measures would also allow their effect to be properly analysed. Our particular concern is for the ipso facto clause, which can be triggered if an insolvency effectively ends a contract to supply. This will require key suppliers to continue to supply struggling companies, despite the risk that they may not get paid. This transfers the risk from the struggling company to the supplier, which, whether in an economic crisis or not, is unacceptable. In times when cash flow is limited, it is not sufficient protection for a supplier to get in the queue with other creditors in the event of one of its customers falling into administration. Suppliers should retain the right to choose to withdraw their services if they perceive that their resources will face a lower risk return elsewhere. To compel them to continue their supply would be unethical.
I am particularly concerned that such a change would have a disproportionate impact on smaller businesses, especially those that only have the capacity to service a handful of clients, and would be unduly disadvantaged by being required to supply goods and services without the certainty of being paid. I accept that there is a balance to be struck between the needs of customers and suppliers, and that during these difficult times supply chains are critical and need to be supported, but we need to take time to consider the long-term risks of introducing such a change to our insolvency procedures, and the introduction of emergency legislation is not that time.
The acid test of any new legislation at this time should be whether its provisions stimulate and support economic activity. There will be, regrettably, some businesses that will not survive the shutdown. For the sake of those who lose their jobs and livelihoods, it is imperative that capital and investment can be quickly diverted towards those endeavours that can thrive and provide new employment and economic activity. The increase in the scope of exclusions to the ipso facto clause will have precisely the reverse effect, injecting precious working capital into companies that cannot create economic value from it. Now more than ever is not the time to restrict our small business activity in such a way. I urge the Government to adopt the Liberal Democrat proposal that all the provisions of this Bill be time-limited and that we consider the permanent provisions more fully at a later date, when we would have greater insight into the impact of their introduction on our business environment.
Lucy Powell
We are happy to withdraw our amendment on the basis that the Minister undertakes to address the concerns of the trade unions leadership—concerns which they have raised with us about the loss of rights that may result from the Bill—in his meeting with them tomorrow. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 1 to 47 agreed to.
Schedules 1 to 3 agreed to.
Schedule 4
Moratoriums in Great Britain: temporary provision
Amendment made: 15, page 144, line 14, at end insert—
“Part 5
Entities other than companies
91 Regulations under section 14(1) of the Limited Liability Partnership Act 2000 may make provision applying or incorporating provision made by or under this Schedule, with such modifications as appear appropriate, in relation to a limited liability partnership registered in Great Britain.
92 An order or regulations under section 118(1)(a), (3B) or (3C) of the Cooperative and Community Benefit Societies Act 2014 may provide for provision made by or under this Schedule to apply (with or without modifications) in relation to registered societies (or to registered societies of the kind mentioned there).”—(Paul Scully.)
This amendment ensures that powers to apply Part A1 of the Insolvency Act 1986 to certain entities can also be used to apply Schedule 4 to the Bill.
Schedule 4, as amended, agreed to.
Schedules 5 and 6 agreed to.
Schedule 7
Moratoriums in Northern Ireland: further amendments
Amendment made: 16, page 165, line 4, leave out “2 to 8” and insert
“2 to 5, 7 and 8”.—(Paul Scully.)
This amendment removes the repeal of paragraph 6 of Schedule 1 to the Insolvency (NI) Order 2002, as the amendment made by that paragraph remains relevant for certain limited purposes.
Schedule 7, as amended, agreed to.
Schedule 8
Moratoriums in Northern Ireland: temporary provision
Amendment made: 17, page 178, line 14, at end insert—
“Part 5
Entities other than companies
55 Regulations under section 14(1) of the Limited Liability Partnership Act 2000 may make provision applying or incorporating provision made by or under this Schedule, with such modifications as appear appropriate, in relation to a limited liability partnership registered in Northern Ireland.
56 An order under Article 10(2) of the Insolvency (Northern Ireland) Order 2005 may provide for provision made by or under this Schedule to apply (with or without modification) in relation to—
(a) a registered society within the meaning of the Co-operative and Community Benefit Societies Act (Northern Ireland) 1969, or
(b) a credit union within the meaning of the Credit Unions (Northern Ireland) Order 1985.”—(Paul Scully.)
This amendment ensures that powers to apply Part 1A of the Insolvency (Northern Ireland) Order 1989 to certain entities can also be used to apply Schedule 8 to the Bill.
Schedule 8, as amended, agreed to.
Schedule 9
Arrangements and reconstructions for companies in financial difficulty
Amendments made: 18, page 180, line 17, leave out “and 901I (special cases)” and insert “(moratorium debts, etc)”.
This amendment is consequential on amendment 21.
Amendment 19, page 181, line 44, leave out from “etc),” to end of line 1 on page 182.
This amendment is consequential on amendment 21.
Amendment 20, page 183, line 34, after “as” insert “including”.
This amendment makes a minor drafting correction.
Amendment 21, page 184, leave out lines 7 to 30.
This amendment removes enhanced protection for creditors with interests in aircraft equipment, which will make it easier for airline companies to make use of the new restructuring process provided for by Part 26A of the Companies Act 2006.
Amendment 22, page 194, line 40, leave out “and 899B (special cases)” and insert “(moratorium debts, etc)”.
This amendment is consequential on amendment 25.
Amendment 23, page 194, line 44, leave out from “etc),” to end of line 45.
This amendment is consequential on amendment 25.
Amendment 24, page 195, line 24, after “as” insert “including”.
This amendment makes a minor drafting correction.
Amendment 25, page 195, leave out from end of line 42 to beginning of line 21 on page 196.—(Paul Scully.)
This amendment removes enhanced protection for creditors with interests in aircraft equipment, which will make it easier for airline companies to make use of the existing restructuring process provided for by Part 26 of the Companies Act 2006.
Schedule 9, as amended, agreed to.
Schedules 10 to 14 agreed to.
The Deputy Speaker resumed the Chair.
Bill, as amended, reported.
Bill, as amended in the Committee, considered.
Bill read the Third time and passed.