National Security and Investment Act 2021 (Monetary Penalties) (Turnover of a Business) Regulations 2021

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Monday 1st November 2021 Grand Committee

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

My Lords, in moving that the draft National Security and Investment Act 2021 (Monetary Penalties) (Turnover of a Business) Regulations 2021 be approved, I will speak also to the draft National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021, which were laid before the House on 6 September this year. The commencement date for both SIs is 4 January, which is the same date as the full commencement of the National Security and Investment Act 2021.

Before I turn to the detail of the SIs, I will say a few words to remind the Committee of the purpose of the National Security and Investment Act and why it is vital for the UK’s security. The UK economy thrives as a result of foreign direct investment. Over the past 10 years, more than 665,000 new jobs have been created as a result of more than 18,000 foreign direct investment projects. However, as I am sure your Lordships will agree—and indeed as the House demonstrated through its agreement to the Act—an open approach to investment must include appropriate safeguards to protect our national security and the safety of our citizens.

The NSI Act therefore provides the Government with updated powers to scrutinise and intervene in acquisitions to protect national security, as well as to provide businesses and investors with the certainty and transparency they need to do business in the United Kingdom. The Act establishes a call-in power for the Secretary of State to scrutinise qualifying acquisitions, a voluntary notification option for firms which wish to gain clarity on whether the Secretary of State will call in their acquisition, and—the subject of these regulations—creates mandatory notification requirements in 17 sensitive sectors of the economy where it is considered that national security risks are more likely to arise.

Starting with the draft maximum monetary penalties regulations, this SI sets out how the Secretary of State will calculate a business’s turnover when calculating monetary penalties resulting from non-compliance. We generally expect compliance with the Act to be high and the need for the Secretary of State to issue penalties to therefore be rare, but it is important that the Act comes with sufficient deterrents to non-compliance.

This SI is laid under the delegated powers pursuant to Section 41 of the Act. Sections 32 and 33 create offences of completing a notifiable acquisition without approval and failing to comply with an interim or final order. Both these offences can result in the imposition of a monetary penalty.

The maximum fixed penalty that can be imposed on a business for an offence under Section 32 or 33 is the higher of 5% of the total value of the turnover of the business and £10 million. The maximum amount per day for a daily rate penalty that can be imposed on a business for an offence under Section 33 is the higher of 0.1% of the total turnover of the business and £200,000.

With these regulations, we have ensured that global turnover is taken into account when calculating the total turnover, so that no efforts to get round the penalties—for example, through changing accounting approaches—will be successful. These are important and well-balanced regulations, necessary for the effective functioning of the NSI Act.

Turning to the notifiable acquisition SI, which was of some interest to your Lordships during the passage of the Act, the SI has also been noted by the Secondary Legislation Scrutiny Committee as an “instrument of interest”. These regulations specify descriptions and activities of qualifying entities, the acquisition of which must be notified to the Secretary of State—a notifiable acquisition. Acquisitions in scope of mandatory notification that complete without the approval of the Secretary of State will be void and therefore have no effect in law. These are important changes to the UK’s investment screening system and sectoral expertise has been vital to ensure that mandatory notification is proportionate and targeted. The Government have therefore taken great care and time to get these regulations right.

Alongside the introduction of the NSI Bill in November 2020, the Government ran an eight-week public consultation on the proposed descriptions of the 17 areas of the economy referred to in the draft regulations, after which the Government published revised definitions in March. The Government then undertook further targeted engagement with stakeholders in these key sectors—such as communications, data infrastructure and synthetic biology—to refine and narrow the proposed descriptions to provide businesses and investors with further clarity.

As the Minister for Small Business, Consumers and Labour Markets did in the other place, I place on record the Government’s appreciation of the extensive input we have had from across sector organisations in helping to develop these regulations. They strike a careful and appropriate balance between ensuring that our national security is safeguarded and keeping the number of businesses caught by the mandatory notification requirements to a necessary and proportionate level. In addition, these regulations allow parties themselves to identify objectively whether they are in scope of mandatory notification or not.

In addition, to monitor the impacts on businesses and investors, particularly small and medium-sized enterprises, the Government have chosen to include a shorter three-year post-implementation review within the SI, instead of the more standard five-year period. The Government engage on a daily basis with a wide range of businesses to help them understand the requirements of the Act, and we will of course continue to do so. Furthermore, extensive guidance across all 17 areas of the economy specified in these regulations will shortly be published to further assist parties in understanding the effect of the requirements on their planned activities.

In conclusion, these are detailed and technical statutory instruments which give effect to the purposes of the NSI Act. They have been carefully developed and tested to ensure that they give maximum clarity to businesses, while allowing us to protect the UK’s national security. I commend the draft regulations to the House.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank the Minister for introducing these statutory instruments. As has been said, they follow on from the National Security and Investment Act 2021 that we concluded earlier this year. Indeed, most of the things that could be said were said during those proceedings. The basics of what is covered by these instruments, such as the level of fines, was set out in the Act, but how turnover is calculated for the purposes of the fines is now laid out in more detail. As has already been explained, the maximum fixed penalties for offences are the higher of 5% of the total value of the turnover and £10 million, or a daily amount that is the higher of 0.1% of the total turnover and a cap of £200,000.

Clearly, it is important to define how turnover will be calculated for the purposes of fines, and I am glad to see that it is globally based—indeed, I think we were told that that was the intention. Whether the formulations actually laid out are right remains to be seen. I hope that, if they do not work, they will be adjusted, and that the Secretary of State will be prepared to intervene and overrule—as he can—on the companies’ turnover calculations, should they be unrealistic or if there have been manoeuvres to minimise exposures, which can be different from just accounting measures and moving things around globally if it covers the creation of special companies, subsidiaries and a whole gamut of things that will probably be beyond everything that we could list now.

I also have a reservation, which I think I expressed during the Bill proceedings, concerning whether the maximum fines have been set too low. As they are presently fixed, the percentages will bear down in totality more heavily on SMEs, which will tend to fall under the percentage calculations, than on large, international businesses, which will hit the maximum and be able to enjoy—if that is the way to phrase it—a cap. I am sure all noble Lords hope that the penalties do not need to be used all that often and that, as the Minister said, it is rare. Nevertheless, there must be a strong deterrent; it cannot be seen as a risk worth taking. The fact is that I can think of some deals where £10 million is not a lot in the scale of things and given the charges that are levied by advisers. In my view, the cap, if there is one, should be proportionate. I hope that the Government will hold on to that thought, and perhaps the Minister can say what thinking there has been in the Government and the department around that.

Obviously, it is unrealistic to expect the Government to revise figures that have only just been passed in the Act, but under Section 41, it is possible to vary them. Could the Minister explain how such adjustment possibility is viewed, looking forward? Will it be used simply to adapt to inflation or, as I have suggested, will it be used if the deterrent is, as it turns out, not quite strong enough for the largest multinationals?

I turn to the second SI and the specification of qualifying entities. The definitions contained in the schedules have been refined in response to stakeholder feedback following the consultations which took place as the Bill was proceeding and subsequently—all of them have been refined, which is good to see. The outcome seems to have been broadly welcomed, with more focus and narrowing but also some occasional broadening. However, I gather there are still some industries with concerns about them being too broad. Perhaps it is a case of saying that not every possibility is covered. The challenge there is the make the reserve call-in power both functional and reasonable, without making it look like it has become protectionist.

It is in fact difficult to understand the legislative detail, how and why the various changes have been selected, and who has been listened to, as the contributions are not available for scrutiny; we cannot really scrutinise that aspect of the job. It is almost certain that large companies and their advisers will have been the most active. I am not criticising that involvement in any way; they have both the resources and the expertise to keep on top of the job and their input is valuable. However, can the Minister inform me how suggested changes are then back-tested, in particular for small businesses, and whether what fits the larger businesses and comes as advice from lawyers and other advisers fits across the piece?

Overall, the situation is that we must accept the assurances that efforts have and are being made to get things right and that the Government and the department will do their best to issue advice and assist companies. It is of some comfort that the review period has been shortened, as the Minister said, to three years, rather than the usual five.

In the debate in the Commons, the Minister said that the investment security unit in the department will be able to offer advice and give forewarning, and the Minister here has said similar things. I would like to know a little more about how that works, especially for SMEs. Is there helpline advice, separate from guidance, and can it be relied upon, or is it the case that there will inevitably end up being a larger number of precautionary notifications than are really needed, because that is the point at which you can get some definitive feedback? Will the Government be able to publish what has been positively cleared and other advice given once it is no longer time sensitive to a prospective deal? I recognise that it cannot be done in real time, but will something of that nature happen retrospectively?

Finally, as I have already referenced, the Secretary of State is given powers to call in other transactions not covered by the 17 sectors. I am conscious, as I said, that it is necessary to demonstrate that the UK is an open economy, but on the other hand, recent experience with Covid, Brexit and other geopolitical issues has drawn more attention to security of supply. Will there be a capacity and appetite to monitor transactions generally and take action where needed? What other measures are being taken around issues of greater security of supply?

Audit and Corporate Governance

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Tuesday 23rd March 2021 Lords Chamber

[Lord Callanan (Con)]

Indeed, I have had extensive engagement with the profession, including the big four and a number of smaller companies, as we seek to progress the legislation.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, in the RBS rights issue trial, Mr Justice Hildyard said that the purpose of Section 87A(2) of the Financial Services and Markets Act, concerning information to enable investors to make an informed assessment, had to be appropriate for the ordinary investor whose protection is the statutory objective. Does the Minister agree that the same logic must apply and be preserved in any changes to audit and capital maintenance statements? They are for the ordinary investor, not just expert users.

[Lord Callanan (Con)]

These proposals are to provide information to expert users and many of the ordinary readers as well. Therefore, both markets are to be fulfilled.

United Kingdom Internal Market Bill

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd November 2020 Lords Chamber

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

My Lords, Amendments 107 and 108 in my name aim to clarify the scope and application of the professional qualification clauses of the Bill. Amendment 107 adds patent attorneys and trademark attorneys to the list of legal professions excluded from the application of the automatic recognition principle in Clause 22. As well as work related to trademarks and patents, trademark and patent attorneys may carry out broader regulated legal activities which require an understanding of the underpinning legal system in the part of the UK in which they practise. Accordingly, we are bringing them into line with the other legal professions to ensure that they are not caught by the automatic recognition provisions of the Bill. These exclusions ensure that access to these professions is not affected in any way by the recognition provisions of the Bill.  Part 3 will not affect how these professions are regulated, nor will it change what activities trademark and patent attorneys are able to perform.

Amendment 107A has been tabled by the noble Baroness, Lady Bowles, in response to this government amendment and seeks to probe the effects of the amendment in respect of authorised reserved legal activities under the Legal Services Act 2007. In respect of this amendment, I reassure the noble Baroness, Lady Bowles, that nothing in the recognition provisions of the Bill, or in the government amendment, changes how reserved legal activities are authorised under the Legal Services Act 2007, and her amendment is therefore unnecessary.

Amendment 108 is a technical amendment to provide clarity on the type of qualifications and experience requirements to which Clause 22 applies. It ensures that where qualification requirements are attached to specific activities, those requirements are disapplied by automatic recognition only if they apply to activities that are essential to the practice of the profession in question—in other words, if they amount to a barrier to access to the profession as a whole. This will ensure that Clause 22 does not apply to qualifications or experience requirements for activities which are not essential to the practice of the profession, such as optional service activities which professionals may choose to offer.

I recommend that government Amendments 107 and 108 be accepted, as they provide clarity on the scope and application of automatic recognition principles. I regret, however, that I am unable to support Amendment 107A, for the reasons I gave earlier. I hope that the noble Baroness will feel able not to press her amendment. I beg to move.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I am a retired patent attorney, which is what made me curious about Amendment 107. I guess that is an interest of some kind, though no longer pecuniary.

In this group I have tabled Amendment 107A, which is intended to clarify what has become a confused situation. It can accurately cover all the legal professions named in Clause 25, although the confusion relates only to patent and trademark attorneys. Essentially, it says—as I think the Minister agreed—that there is no change to the status quo under the Legal Services Act 2007, which was the Government’s intention all along.

The background to this is that patent and trademark attorneys may be in the unique situation of being regulated and qualified on a UK-wide basis, while, through their sectoral professional qualifications, also engaging in four specific English and Welsh reserved legal activities, no matter where in the four nations of the UK they qualified, reside or practise. They do this as patent attorneys or trademark attorneys, not as lawyers.

The purpose of that unusual provision is, broadly, to enable conduct of litigation for all in the specialist England and Wales Patents Court, and for associated matters such as deeds and oaths to be dealt with. That unique construct does not fit within the definition of Clauses 22 and 23 for the professions when they are identified as patent attorneys or trademark attorneys because you cannot work it out so that there is a relevant part and the other part. Noble Lords are welcome to try—it takes quite a few pieces of paper. The point is that it is the same for all patent and trademark attorneys, wherever they are.

However, somewhere the niggling thought arose that perhaps it was confusing, or that the mutual recognition would apply notwithstanding that Clause 22 did not apply and would somehow extend the enjoyed England and Wales reserved activities to Scotland or Northern Ireland courts, deeds or oaths. Amendment 107 has, therefore, been proposed. It has the effect of defining patent and trademark attorneys as a legal profession in Clause 25, thereby putting them into Clauses 23 and 22 and simultaneously taking them out again. This hokey-cokey amendment was meant to stop confusion. It has, however, also created its own confusion, perhaps best illustrated in an explanation from the Ministry of Justice that said:

“If trademark and patent attorneys were not excluded from the UKIM bill, then one of your practitioners authorised to conduct litigation in Northern Ireland, for example, could potentially argue that under the automatic recognition principle IPReg must also allow them to conduct litigation in England and Wales without meeting the normal IPReg authorisation requirements for doing so”.


However, that does not fit the present circumstances that I have just explained. The patent or trademark attorney in Northern Ireland is qualified to conduct litigation in England and Wales but, actually, not to conduct litigation in Northern Ireland—and that is not the only wrong explanation that has been offered. Indeed, a few moments ago, the Minister referred to attorneys being qualified in respect of the part of the UK in which they practise. There is no such provision for patent and trademark attorneys. They just have that extra bit of add-on, no matter where they practise, which relates to being able to access the England and Wales Patents Court. That is quite fundamental, because that is where you would see appeals from the comptroller and so on.

I believe that a true analysis of the facts ends up as I have said, that these particular professions were not in the original construct, but some people might have been confused. Now they are defined as in and out again but, unfortunately, this leads to other confusions, suggesting divisions in the profession that do not exist but which have just been replicated in the words of the Minister. If the Minister and an MoJ official can get it wrong, who else might? A wrongful accusation, no matter that it can be refuted, is still damaging. My amendment clarifies that the status quo is maintained. It neither adds nor subtracts anything, other than giving clarity—something to point to on the same page as the confusing hokey-cokey.

--- Later in debate ---

[Lord Callanan (Con)]

I will certainly check that, and of course I will respond to the noble Lord if that proves incorrect. We obviously proposed the creation of the office for the internal market in the White Paper and said that we were interested in views—the noble Lord, Lord Purvis, shakes his head but I think we did. I will clarify that for the noble Lord in writing, in one of the many letters that I will be sending him. I definitely remember having discussions at the time of the White Paper with many noble Lords whom I spoke to during the consultation. We certainly discussed at the time how the creation of a new body would best monitor the function and effectiveness of the UK internal market process in the context of the White Paper, but I will certainly clarify that for the noble Lord in writing.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, we have had an extensive and thoughtful debate, and I thank all noble Lords who have taken part. I thank my noble friends Lord Palmer and Lord Purvis for supporting my amendments, and indeed others who have mentioned them; one who springs to mind is the noble Baroness, Lady Altmann. As ever, the major constitutional issue has taken pride of place over technical issues. I am sure that noble Lords have realised that I am rather interested in the technical issues too, but we will end up having to come to grips with them, so I will not reiterate now.

To comment on some of what has been said—I cannot do justice to all speakers—my noble friend Lord Palmer said that there needed to be much more clarity to the OIM, and that we needed to resolve the ambiguity of its structure, flesh out how it works and find out what it meant in real terms. I think that is also the basis for a lot of other thoughts, whether they are technical or to do with devolution. What comes out loud and clear is whether all parts of the UK will feel that they have voice or ownership. My noble friend Lady Randerson led with the proposals that others have also spoken on and which have the support of the Welsh Government. It is all about having a structure that is workable for everybody and not part of something working inside the UK Government.

The Minister says that the CMA is independent. I accept that to a large extent that may be true, but there is still the problem that its strategy can be directed or steered by BEIS. That is just not the way to give the devolved Administrations confidence when, as has been outlined, the hybrid role of UK Ministers leaves us in the rather unsatisfactory situation of the same person trying to arbitrate. It is like the referee in the rugby match that my noble friend Lady Randerson referenced. Indeed, the noble Lord, Lord Wigley, said that basically the referee cannot be the manager of one of the teams—which rather seems to be the situation that we have here.

Some very valid points were made by the noble and learned Lord, Lord Thomas of Cwmgiedd, who said that judges had to be drawn from the different parts of the United Kingdom who understood everything vis-à-vis their specialist knowledge. I would not hold myself out at the level of a judge. I am not bad when it comes to negotiating things internationally, but I am English and would never hold myself out as being able to represent the positions of the devolved Administrations. I know that there are known unknowns that I do not know, and that is the situation we have to recognise. Whatever the integrity of the people on the CMA, you just do not know that the background is there unless they are drawn from a diverse field. I am very much one of those people who says that you cannot have sectoral interests, but this is different. I do not consider that devolution is political in that sense—we are all trying to get on together.

The noble Baroness, Lady Finlay, made a very interesting point when she suggested that it could perhaps be an interim measure because it has all been brought together very quickly. The noble Lord, Lord Hain, investigated the governance of the CMA and came up with many of the same conclusions as others. The noble Baroness, Lady Bennett, echoed that it is all about a voice for the legislatures and how to keep devolution alive.

As I said, I share with the noble Baroness, Lady Noakes, the view that the CMA is meant to be a UK-wide body and that nominees are not always the best people, but what is good enough for judges is, I think, good enough for the OIM. Yes, perhaps you always have to compromise, but my compromise comes down on the side of voice and ownership; otherwise, the body will never be trusted, as the noble Lord, Lord Empey, said. You have to have the confidence of knowing that people are properly at the table. I acknowledge that we have had rather haphazard devolution but, just because we have left the EU, that cannot be solved with “Whitehall knows best” and by taking back things that properly have been devolved.

The noble and learned Lord, Lord Hope, supported consensual Motions and said that consultation is not a guarantee. The noble Lord, Lord Cormack, warned us of the danger of a broken United Kingdom, emphasising again that there was a need for more time to be taken and for more confidence. The noble Lord, Lord Judd, had a good point in suggesting that we need a federal UK. That would perhaps make things easier, but we are not able to resolve that now—so, as he said, it comes back to understanding separate identities and to ownership.

The noble Baroness, Lady Altmann, supported some of my amendments and wanted the proper involvement of all parties. She also felt that the CMA was the wrong home, and really was not a viable place or a viable alternative to constructing a new body, because of the strategic involvement of BEIS and HMT, and because of it not being sensitive to matters of small businesses and diversity.

The noble Baroness, Lady Ritchie, was I think the first to bring forward the same points about needing a degree of independence and embracing the devolved legislatures, and also the fact that the Constitution Committee had also asked, “Why the CMA?” This was echoed by the views of my noble friend Lord Purvis. I agree with him; I could not find the flagging up of the CMA. It may be that one respondent said “a body such as the CMA”, but I did not see any consultation on it being the CMA or whether it was appropriate. The noble Baroness, Lady Ritchie, and other noble Lords also pointed out that the CMA is used to dealing with private business and enterprise and has a BEIS strategic influence.

I cannot begin to summarise what was said by my noble friend Lord Purvis, but the fact is that the CMA is left trying to analyse hypothetical benefits. It is true that we do not really know how this is all going to work out. If noble Lords follow the logic of my noble friend’s argument, they will find that he concluded by asking what incentive there was for this body to be used by the devolved Administrations. It is not intended to stir up wars between the devolved parts of the UK and the centre, but my view is that, by its set-up, it is likely to stoke rather than resolve concerns.

As I said before, the noble Lord does not like looking to the EU for examples, but it is a bit like when the Commission comes out with a proposal. It always wants to harmonise everything to make it easier and then the member states, notably the UK, get stuck in. You then get down to the nitty-gritty and you solve it. At the moment, we have this sort of overview coming from the Government that gives the devolved Administrations no room to manoeuvre—yet, when they get down to the nitty-gritty in the common frameworks, what happens? You can reach a conclusion.

Covid-19: Small Businesses

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Thursday 29th October 2020 Lords Chamber

[Lord Callanan (Con)]

Our winter economy plan builds on the significant support available, with the extension of the coronavirus loan guarantee scheme until 30 November, the introduction of the job support scheme from November and the extension of the self-employment income support scheme.

[Baroness Bowles of Berkhamsted (LD) [V]]

One-third of the self-employed, including sole directors of limited companies and the newly self-employed, are still completely excluded from the self-employed income support scheme. Why can the Government not devise help for them, especially the smallest, who are not in the tax-dodging territory of payment by dividends?

[Lord Callanan (Con)]

The noble Baroness makes an important point, but we have paid out more than £11 billion to more than 900,000 small businesses, and some small businesses that are ineligible for the SEISS grant extension may still be eligible for other elements of the scheme.

Energy White Paper

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Monday 28th September 2020 Lords Chamber

[Lord Callanan (Con)]

The noble Lord is right to point out that intensive work is going on in all those areas. I cannot confirm that those documents will be published at exactly the same time.

[Baroness Bowles of Berkhamsted (LD) [V]]

With the continuing pull-out from nuclear new builds, do the Government consider it strategically important to invest in the pre-commercial development of the marine energy sector, which is also well aligned with areas where development is needed?

[Lord Callanan (Con)]

I agree with the noble Baroness. The Government have a long history of supporting the development and deployment of wave and tidal stream technologies in the UK. To date, we have provided sustained and targeted support enabling the wave and tidal stream sectors to move from initial concept to prototypes and now on to the first arrays in practice.

REACH and CE

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Thursday 17th September 2020 Lords Chamber

[Lord Callanan (Con)]

No. We intend the system in the UK to be as safe and as effective as the EU REACH system.

[Baroness Bowles of Berkhamsted (LD) [V]]

Under the Northern Ireland protocol, the process for Northern Ireland businesses moving goods to and from the EU under EU REACH will not change. What does that mean for goods going from Britain to Northern Ireland? Will Northern Ireland businesses have to grandfather their EU registrations into UK REACH?

[Lord Callanan (Con)]

Under the terms of the Northern Ireland protocol, Northern Ireland will remain aligned with all relevant EU rules relating to the placing on the market of manufactured goods and with the EU REACH system.

Corporate Insolvency and Governance Act 2020

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Wednesday 29th July 2020 Lords Chamber

[Lord Callanan]

I know the noble Lord feels strongly about these matters, and we discussed this during the passage of the legislation. We strengthened the monitor’s role to include a requirement in guidance that the monitor should ensure that the directors of a company have informed all employees that a moratorium has come into force. However, it is too early to see how this will work in practice.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, due to coronavirus and various related measures, there is the potential for a large backlog when the courts and tribunals fully reopen, financial assistance to companies stops, and the whole process of winding-up petitions is removed. What is the capacity of courts, tribunals and practitioners to handle that surge, and how will it be monitored, especially for how it influences choices about and during moratoriums?

[Lord Callanan]

The latest official statistics show that the number of corporate insolvencies decreased by half in June 2020 compared to the same month last year. However, the noble Baroness is right to say that we may well face a large increase in the months to come. We have been working with the courts and have provided the resources to make sure that they can satisfy that demand.

Corporate Insolvency and Governance Bill

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 23rd June 2020 Lords Chamber

[Lord Callanan]

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

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

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

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

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

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

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

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

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

[Baroness Bowles of Berkhamsted [V]]

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

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

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

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

Oil: Changes in Global Markets

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Thursday 21st May 2020 Lords Chamber

[Lord Callanan]

The noble Lord is right. Companies across all sectors will be vital in our work to meet our 2050 net-zero targets. We want all business leaders in all sectors to make ambitious emissions reduction plans to help meet the commitments that we have set out under the Paris agreement.

[Baroness Bowles of Berkhamsted (LD)]

Given oil-related job losses and the likely continuing reduced oil demand, will the Government promote faster repurposing of UK oil-related industries, especially in the light of the EU revisiting the idea of building champion industries through joint state aid?

[Lord Callanan]

We want to encourage those industries to diversify as quickly as possible. Many are doing so and have already announced plans, but, ultimately, of course, this will be market led with government incentives being provided; we are doing that.

Covid-19: British Business Bank

Debate between Lord Callanan and Baroness Bowles of Berkhamsted

Thursday 30th April 2020 Lords Chamber

[Lord Callanan]

Of course, at the moment we are focused on delivering the support that businesses need now, but we will continue to monitor and review all the schemes, now and in the future, to make sure that they are working effectively and helping businesses to get the support they need.

[Baroness Bowles of Berkhamsted (LD)]

Is the Minister aware of reports that some banks are requiring companies to freeze all loans and leasing with other financing institutions before agreeing loans, and that some are charging for personal contact despite arrangement fees being picked up the Government? Is such conditionality and charging allowed?

[Lord Callanan]

The noble Baroness makes a good point, but we have provided a generous guarantee scheme and we fully expect that all businesses will benefit from such schemes and that banks pass on the savings to borrowers. We have removed the forward-looking viability test, as I said earlier, but we constantly monitor all these schemes and seek to improve them where possible.