Lord Fox (LD)
My Lords, for the avoidance of doubt, and for the Government Whip, just as the Government have changed Ministers, so we have changed Front-Benchers. I put that on the record. The noble Lord, Lord Cormack, who is no longer in his place, called this a hybrid Bill. Internally, I have called it the “kippers and custard Bill”, because it contains two completely different things, perhaps creating an unpalatable whole.
I also apologise for not being able to speak at Second Reading, for the same reason as most speakers: it was a moving target and most of us were involved in legislation elsewhere. That said, I was grateful to my noble friend Lady Pinnock, who represented my views on the director disqualification part of this Bill very well. I thank her. Noble Lords will be pleased to know that, despite the fact I was not here for Second Reading, I will not do a quasi-Second Reading speech at this point, but I will take a couple of minutes to set out my frame of reference for this group and the next so that it makes more sense.
I read the Hansard report of the Second Reading. As usual, I was struck by the great wisdom shown by your Lordships, but I was a little surprised to see one speech that characterised the whole insolvency and restructuring profession in a universally negative way. Although I am sure there are always examples of bad behaviour, I put on record that that is not my experience. By way of disclosure, I point out that R3, the organisation that represents the profession, has been very helpful in providing technical briefing to me on the Bill.
Businesses, especially smaller ones, rely on these services to get back as much of the money that they are owed as possible. That can be an existential issue for them. As things stand, some creditors are more equal than others. HMRC has always sought priority access to a failed company’s assets. We debated this long and hard during the passage of the Corporate Governance and Insolvency Bill—it seems a lifetime ago—where the Government promoted the interests of the tax authority a little higher. This Bill seeks to introduce powers to enable the Insolvency Service to investigate directors of companies that have been dissolved. Currently, the Insolvency Service can investigate directors of insolvent companies only. We should ask whether it seeks to achieve that on behalf of HMRC at the expense of other creditors. Will the Minister give us a specific assessment of how this new process will affect non-HMRC creditors?
There are accusations that the Government are in danger of not dealing with the loophole to deter fraudulent behaviour because this legislation is so tightly focused on bounce-back loan fraud. While the Government are likely to be a significant creditor in those cases, using this legislation in such a limited way would represent a missed opportunity to tackle the abuse of the company dissolution process more widely. I think that was what the noble Lord, Lord Lea, alluded to. Dissolving a company is a legitimate way of shutting a business down but it is often used to avoid scrutiny, as dissolution does not currently involve examination of the dissolved company’s finances by an external party, such as an insolvency practitioner. The Bill should be a chance to open this issue up.
We broadly support Amendment 3, in the name of the noble Lord, Lord Lea, and Amendment 7, in the name of the noble Baroness, Lady Blake. They both essentially probe when a company moves into dissolution. The noble Lord, Lord Lea, seeks to expose a possible pattern of director behaviour and the noble Baroness, Lady Blake, seeks to gain more data on the possible extent of such abuse through a duty of reporting for the Secretary of State. I do not think any of us would maintain that these amendments on their own would stamp out abuses, but at the very least they would cause a strong light to be shone on them.
I have a couple of other questions for the Minister. What steps will the Government take to ensure that investigations into directors of dissolved companies do not come at the expense of investigations into directors of insolvent companies? How will the Government determine which cases are in the public interest? The Bill’s impact assessment focuses on bounce-back fraud, but there are many other creditors in fraud cases. There is a huge public interest in helping ensure that all creditors are repaid. They are the businesses that contribute to the nation’s economy and without repayment they may become insolvent. This Bill risks becoming a missed opportunity to help this wider body of individuals and business if it is used to recoup government money only. Ensuring that creditors receive their fair share of any assets vested in a company requires the use of the insolvency framework to identify and distribute those assets. At the very least, will the Minister confirm that, where a company’s directors are found to be culpable, dissolved companies will be put through an insolvency process to ensure that returns to creditors can be made?