Small Business, Enterprise and Employment Bill

Debate between Lord Flight and Baroness Wheatcroft

Wednesday 21st January 2015 Grand Committee

[Baroness Wheatcroft (Con)]

My Lords, I speak in support of Amendment 61ADD, which would bring in these powers more quickly. The Graham review did a very thorough job and made its proposals, but surely a year is long enough to see whether the industry is going to take note of what was said and respond. As the noble Lord opposite said, there is no doubt that there have been some highly dubious pre-packs and, although I am sure that our insolvency practitioners are, indeed, the envy of the world, some may not be quite as worthy of envy, apart from in respect of the fees they charge. There is a need to deal with this issue more speedily.

I also have qualms about the definition of “connected persons”. I would be grateful if my noble friend the Minister would explore whether in a certain situation where a company borrows money from the bank and the bank then sells that debt to an organisation, which may eventually end up being part of a pre-pack that buys the business, that purchaser of debt should, indeed, be classed as a connected person. At present, they would not be connected persons. This was recommended by the Graham review, which wanted to keep things very narrowly defined and not bring in debt at all. However, I think there is sufficient evidence to suggest that this is at least worth investigating.

[Lord Flight]

My Lords, I think there is a consensus that pre-packs need to be cleaned up, as it were. However, it would be a great mistake to get rid of them and I will cite some figures in that respect in due course. I am less than comfortable with Clause 126 as it stands, which enables the Secretary of State to make regulations where approval is required for the sale of an asset to the connected parties, although it does not appear that that is the case now. I would be concerned if onerous obligations were put on an insolvency practitioner to obtain, say, creditor consent, which is likely to take significant time and could impact the deliverability of a transaction, and which would be in the interests of the creditors. Insolvency practitioners are meant to have the expertise and experience to make sound commercial decisions. My concern is that regulation is being put ahead of commercial needs.

In reference to what the noble Baroness has just said, the Graham review made some very sensible pre-pack pool proposals for reviewing and giving either the thumbs-up or the thumbs-down to pre-pack arrangements. I think that these are starting to be adopted and that is a very useful route to go down. As has been said, the current drafting of the clause goes beyond pre-packs and captures all connected party sales in all types of administration. For example, a business could end up going into liquidation instead of administration as a result of the clause. This would lead to job losses and the UK business rescue culture would be undermined.

The Government’s aim is to provide great confidence to unsecured creditors and other affected stakeholders, and a pre-pack represents the best outcome to them. The clause provides the Government with a reserve power to prohibit not only pre-pack administration sales but sales to connected parties, as has been mentioned. The concerns about the clause as it stands relate to the unintended consequences of the wide manner in which it is drafted. The Government have confirmed that the clause is aimed at pre-packs, yet it captures all types of trading administrations, which could include a straightforward business sale. For example, there may be a case in which a company could be put into trading administration and no pre-pack deal is on the table; the administrator conducts open and wide marketing, and there are a number of bids to buy the company. The administrator could be prevented by the clause from selling the business to any of the workforce of the company, because they would be considered to be a connected party. This could mean that the good and best offers cannot be accepted by the administrator, and the creditors would lose out. Jobs would also be lost and the UK’s business rescue culture undermined.

I am certainly opposed to the risk of pre-packs being prohibited. The benefits of pre-packs were identified in the Graham review and previous research. Given the proposed areas of reform to pre-packs to boost transparency and confidence, the clause to ban pre-packs—that is the intention—is greatly mistaken.

The extent of pre-packs is often overstated. There are around 20,000 corporate insolvencies in the UK a year, about 3% of which—between 600 and 700—are pre-pack sales. Yet only a small percentage of all corporate insolvency pre-packs attract public scrutiny over a perceived lack of transparency, but this has obviously affected policymakers.

Pre-packs preserve jobs. In 92% of pre-pack cases, all the employees were transferred to the new company; whereas that happened in only 65% of business sales. Average returns to secure the creditors in pre-packs were 35%, compared with 33% in straightforward business sales. In addition, the Graham review found that pre-packs certainly have a place in the UK’s insolvency landscape, preserve jobs, bring benefits to the UK, and reform would be worth while. I am therefore uncomfortable with Clause 126, which goes too far, and there ought to be a less draconian way in which to tidy up the scope for abuse of pre-packs.

Growth and Infrastructure Bill

Debate between Lord Flight and Baroness Wheatcroft

Wednesday 20th March 2013 Lords Chamber

[Baroness Wheatcroft]

My Lords, many noble Lords today have explained that this is not the way to get the workplace flexibility that we need, and I agree. This clause purports to construct a new class of employee shareholder, but there are already 3.5 million people who believe themselves to be employee shareholders, in more than 5,000 companies. It threatens to give the wrong idea of what employee ownership is all about.

Employee share ownership brings many good things, such as lower absenteeism, staff turnover and higher productivity. The Deputy Prime Minister is a fan. He is so enthusiastic about this concept that in January last year, in the City, he suggested that perhaps employee ownership was such a good thing that the Government should consider giving employees the right to ask for shares in their business. We seem to have turned that round in the most extraordinary way. I cannot believe that he envisaged a scheme whereby employees would have to give up their rights in order to become shareholders.

This proposal troubles me, as it did in Committee, because I fear that it will bring out the worst in business, and not the best. We have heard about so many things that are wrong with this clause. The original government consultation was responded to by 184 organisations. Only three said that they might consider adopting it. However, being told that probably very few will take it up is hardly a recommendation.

There are some supporters. The Institute of Directors has now come out in favour of the proposal, although when I asked if they had consulted their members, the answer was no. The chief executive of the British Venture Capital Association has also come out in favour. He says that in every start-up that he has ever been involved with, employees have been given shares. I am sure he is right, and I am sure that it has worked. Clause 27 might be more acceptable—I doubt it, but it might—if it were restricted to start-ups, where the rate of failure is obviously clear, and where the potential of gain, if one were lucky enough to be employed by Google or the like, would be an attractive alternative. However, the scheme is not restricted to start-ups or even small companies. Instead, it will appeal to those middle-sized and larger businesses that may see it as a way of becoming part of what is already being referred to as the “Gradgrind tendency”.

Let us imagine a group of employees who have sold their rights—for a mess of pottage, as we have heard—and another group who have not. The company falls on hard times and has to declare redundancies. Who will be first in the line for redundancy? I would hazard a guess that it will be those who have shown the most commitment to the business by becoming employee shareholders under the new scheme. That is the sort of perverse effect that we are likely to see if the clause goes through.

This legislation risks giving employee ownership a very bad name. I would not advocate the idea, suggested by the Deputy Prime Minister, that we should give employees the right to request shares in their company. However, to give those in larger companies the option of taking shares and giving up their right to request training seems extraordinarily perverse at a time when we need the best-skilled workforce we can get.

There are so many reasons why this clause should be opposed today. Much as it grieves me to speak against my Government, and much as I see many things in the Budget that should be applauded, this would end in tears.

[Lord Flight]

My Lords, as I suggested in our debate on the previous amendment, I accept that some improvements could be made to this clause, and it is unlikely that its take-up will be substantial if it goes ahead as it is. I also certainly agree with the principle that it has to be voluntary. If it was the case—I am not sure that it is, despite the advice of the noble Lord, Lord Pannick—that people lost their jobseeker’s allowance if they did not accept employment, I think that is wrong. But this House should listen a little more to the noble Earl, Lord Erroll, and those who really are engaged at the SME level. It is very interesting that nearly all those opposed to this clause had nothing to comment on the extent to which employment law has clearly become discouraging of employment and has, in a sense, gone too far in the protective direction, generating massive income for lawyers, with too many vexatious claims. This clause is, in some senses, no more than a perhaps not totally well thought out attempt at an experiment to see what happens and whether we can agree, with benefits to the employee, to have much less demanding employment law.

I am a little concerned that those opposing this Bill are, to me, today’s establishment from all sides of the House, and not the people at the coal face who are trying to promote small businesses. The clause could be polished up—I hope that it will be—before it is enacted, and some things may be wrong, but at least in an important way it accepts the point that many others do not seem to accept, which is that employment law in this country, particularly in the world in which we live today, is costing us jobs and prosperity, and something needs to be done about it.

Financial Services Bill

Debate between Lord Flight and Baroness Wheatcroft

Tuesday 6th November 2012 Lords Chamber

[Baroness Wheatcroft]

My Lords, I share the qualms that have been voiced about this group of amendments. I believe that the court needs to exercise far more power than it has appeared to in the past, although I am intrigued to hear the noble Lord, Lord Myners, say that when three members of the court tried to make their views and their concerns known, they had no impact at all. That would seem to be a failing of the Government rather than the governance of the court.

The amendment that causes me particular concern is Amendment 3B, which proposes that the Bank’s strategy should for the time being be “prepared” by the Court of Directors. It does not seem to me that “preparing” a strategy should be for the non-executives. It may well be, and should be, their right to determine whether that strategy is the right strategy. However, we want them to “determine” rather than “prepare”.

[Lord Flight]

My Lords, it seems to me that none of these things makes any difference. The real issue is that if a board of directors cannot sack the chief executive if it thinks that he is not doing his job properly, then it is an enfeebled board. That is the fundamental issue. As long as we have the chief executive appointed for a term period and not able to be removed by the board, then there will be an issue about the effectiveness of that board.