Corporate Insolvency and Governance Bill

Lord Hodgson of Astley Abbotts Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Tuesday 9th June 2020 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con) [V]]

My Lords, I begin by thanking my noble friend for his explanation of the Bill’s proposals. Secondly, I draw the House’s attention to my entry in the register of interests as a director of several companies that would be affected by the Bill’s provisions. It has been made clear that the Bill has been brought forward because of the pandemic. I understand and support that. Nobody who has been a director of a limited company will be unaware of the dangers of trading while insolvent, and who can judge what is solvent in the present very confused circumstances? This aspect of the Bill has my support for a further reason: all the provisions are time-limited, so even if our inevitably rushed judgment proves faulty the sunset clauses will ride to our rescue.

Wearing another hat, I chair your Lordships’ House’s Secondary Legislation Scrutiny Committee, which has been looking at, examining and reporting to the House on a great number of coronavirus regulations. There has emerged a tendency of the Government to try to tack on to coronavirus regulations some permanent changes to our law. These may not be objectionable, but they pass through under the radar of the coronavirus regime. We have been drawing these to the attention of your Lordships’ House in our weekly reports. Mixed provisions in regulations, which are of a lower order of significance, are one thing; mixed provisions in primary legislation, leading to statute law, which is what we have here, are quite another. Under the guise of the requirements of the pandemic, the Government are rushing through—I use that word advisedly—permanent changes to the insolvency laws of this country.

Let me be clear: I am not opposed to changes and review of insolvency laws. Some 15 years ago, I sat where the noble Lord, Lord Stevenson, would be sitting if he was in the House, leading for the Conservative Party on what became the Companies Act 2006. We brought together every aspect of company law with two exceptions, one of which was insolvency law, because the complexities were too great for us to reconcile them there and then. So, 14 years later, I quite understand that the situation will not have improved, but it remains an immensely complex area, reconciling the irreconcilable. It is an area where unintended consequences, as the noble Baroness, Lady Bowles, pointed out, crop up with unhelpful frequency and where there are people who seek to exploit gaps with unattractive and unregulated behaviour.

What am I concerned about? My worries include the changes to the creditor position of HMRC; the ability of creditors to game the system where the banks and financial institutions are sufficiently bound into the new approach; the future role of the pre-pack watchdog; and provisions for appointing monitors and for ensuring that they are not conflicted. All these are no doubt answerable, but they are not properly answerable in a rush.

To conclude, I understand the need for this legislation to be passed speedily, but I deplore permanent changes to our laws being made under the guise of the pandemic. I hope that my noble friend will consider tabling amendments to apply sunset clauses to the whole Bill. The Government will get their Bill and we could then come back to these very knotty and conflicting issues in calmer times and with the benefit of some real-life experience. In his opening remarks, my noble friend referred to the R3 briefing from Scotland. The R3 briefing from England makes it clear that it is not clear about the detail yet. Indeed, the Minister’s own departmental website quotes Jennifer Marshall, a past president of the Insolvency Lawyers’ Association, as saying that she is looking forward to

“digesting the detail with interest.”

If these two people, with their great experience, are not able yet to understand the detail, surely we should not be rushing these provisions through now.

Corporate Insolvency and Governance Bill

Lord Hodgson of Astley Abbotts Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Tuesday 16th June 2020 Lords Chamber

[The Deputy Chairman of Committees]

I understand that the noble Lord, Lord Lennie, does not wish to speak, so I call the noble Lord, Lord Hodgson of Astley Abbotts.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have Amendments 8, 21 and 42 in this group. I remind your Lordships’ House of my entry in the register of interests.

The amendments are of a practical nature and are drawn from my experience as an investor in and director of private equity funds and small companies over many years. Before I turn to them, I will just repeat to the Minister how unsatisfactory is the way the Bill is being dealt with. We are mixing coronavirus amendments —which we all understand have to happen quickly—with permanent changes to our insolvency law, and this is a rushed job that may well rebound to cause more trouble for the Government than they like. The reason I want to repeat the points that I made at Second Reading is that since that debate on a Bill littered with Henry VIII clauses took place, we have had a report from the Delegated Powers and Regulatory Reform Committee. I do not think I have ever read a report that is quite so critical of a Bill. I have to say to my noble friend that if Members of your Lordships’ House are inclined to push amendments to restrict those Henry VIII clauses today or at future date, I shall feel obliged to support them, because we have a very bad mix here.

The purpose of Amendment 8 is to facilitate and encourage the use of moratoriums. Events leading to a company’s collapse proceed at two speeds. It first happens at a slow speed, while the directors think, hope and pray that something will turn up—that a contract will be won, some money will come in, or an investor will appear. Inevitably, when Mr Micawber does not turn up, things have to move very quickly indeed. Then, if they decide to appoint a monitor, the time for him to make his decision is very limited indeed. As we know from the wording of the Bill, he has to make a statement that it is likely that a moratorium would result in the rescue of the company as a going concern.

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Mine is nothing more than the pragmatic suggestion that the Government could, in this one respect, reduce some uncertainty for companies if they simply extended the provisions for the relaxation of wrongful trading from the end of June to the end of September. It is three months. Within that period, companies will still have to fit with the proposals in the Bill. They will still have to demonstrate that what is impacting their business is the virus, and that they are not knowingly gaming the system. This is an unsatisfactory debate, because it is so short, but that is the import of my amendments. I beg to move.

[Lord Hodgson of Astley Abbotts]

My Lords, I have Amendment 129 in this group. It seeks to equalise the different levels of protection afforded to firms in trouble under this legislation. It has been brought to my attention by a firm of solicitors that specialises in insolvency. The two critical dates in the legislation are 27 April, after which general protection is available; and 1 March, just under two months earlier, after which protection is afforded, but only if a statutory demand for payment has been made.

However, a statutory demand is not the only way that a company can be caused to fail. It is possible to go for a default judgment in a county court or a liability order in the magistrates’ court and proceed directly to a winding-up. Firms that are subject to either of these other two procedures do not benefit from protection from 1 March, but from 27 April only.

Firms are able to object and to fight these proceedings but, from 23 March, the country was in lockdown. Understandably, courts have found it more difficult to inform defendants about cases brought against them and, in many cases, smaller companies—where the proprietor is running the business almost on their own —may have been involved in self-isolation. They are therefore unable to access proper legal advice to protect their position. My amendment seeks merely to extend protection for these cases, particularly those affecting small companies, from 27 April to 23 March—the date on which lockdown began and the inequality of legal arms may have commenced.

[Baroness Bowles of Berkhamsted [V]]

My Lords, I can be brief because my amendment in this group contains a separated half of the GB-Northern Ireland pair of amendments relating to small businesses that I spoke about in the previous group, so I do not need to explain those again, and in the interests of time I will forgo speaking on anything else.

Corporate Insolvency and Governance Bill

Lord Hodgson of Astley Abbotts Excerpts

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

Moved by

[Lord Hodgson of Astley Abbotts]

57: After Clause 17, insert the following new Clause—
“Review of pre-pack transactions
In Schedule B1 to the Insolvency Act 1986, after paragraph 74 insert—“Review of pre-pack transactions“74A (1) The assets of a company may not be transferred under the terms of a pre-pack transaction unless the proposed purchaser has obtained an opinion in writing from a member of the Pre-Pack Pool that the transaction is not unreasonable.(2) In this paragraph, a “pre-pack transaction” means a transaction which is negotiated before a company enters administration, and under which all or a substantial part of the company’s assets are sold to an associate on or shortly after the appointment of an administrator.(3) For the purposes of sub-paragraph (2), “associate” has the meaning given in section 435 of the Insolvency Act 1986.””Member’s explanatory statement
This amendment requires a positive opinion to be obtained from a member of the Pre-Pack Pool before a company enters into a pre-pack transaction. The Pre-Pack Pool is an independent body of experienced business people set up in response to the recommendations of Teresa Graham’s report.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I thank the Minister for rearranging his diary to enable us to complete Committee stage so quickly, the Whips Office for similarly reorganising things so that we can get on with it and, last but not least, the staff of the House for the work they have undertaken, particularly since we kept them here rather later than should have been the case yesterday evening. I am very grateful to them all, particularly my noble friend the Minister, who sat patiently and courteously through a very long and quite testing time yesterday.

I ask my noble friend the Minister’s help in just one thing, which concerns my blood pressure: could he possibly ask his Bill team, when they prepare his speaking notes, not to say, “The Bill is needed because of the pandemic”? The Bill is not needed because of the pandemic. Half the Bill is needed because of the pandemic, and if we were dealing only with that half, we would have been done and dusted and home in time for tea yesterday. As we unpicked and unpacked the Bill yesterday afternoon, we saw how much consideration still needed to be given to the bit of the Bill that has nothing to do with the pandemic. If he could just make that change to his speaking notes, it would do wonders for my blood pressure and, I suspect, for that of many other Members of your Lordships’ House.

Amendment 57 is designed to remedy a gap in the oversight and regulation of pre-packs. I am extremely grateful to the noble Baroness, Lady Bowles, for her support on this amendment. I know that my noble friend Lady Neville-Rolfe, whom we will hear from later, probed in a similar way with Amendment 60, which we touched on yesterday afternoon.

During that debate, my noble friend the Minister said that pre-packs were a valuable tool in the insolvency toolkit. He is right that they are valuable but they are open to abuse, which is why I pressed for the House to have a chance to debate pre-packs in a separate group of amendments. First, the treatment and regulation of pre-packs is a loose end in insolvency law and practice. It has been so for 20 years; indeed, it has been a very loose end for the past six years. Secondly, at the margin, if pre-packs continue to grow unregulated, it will undermine the use of moratoriums, which are a much more carefully controlled and regulated way of dealing with company insolvency. Why go through all that if you can go to a pre-pack and therefore, in that sense, undermine the purposes of this Bill?

For those who have come late to the party, I have a few sentences on how pre-packs work, using an example of how the position can be abused. Directors decide that a company is no longer able to trade solvently and will shortly become insolvent. The probable reason is because the company has taken on a lot of debt from previous bad decisions. There are too many creditors and the bank is owed a great deal of money. However, within the company, there is an operational piece that the directors think can be salvaged, so they decide that they will make an offer for that operational piece, without the debts. They approach an administrator and say, “This is what we’d like to do.” They make a nominal offer—maybe only £1 or a similarly trivial sum.

The administrator then takes it on. He or she must decide that this is a fair offer, so it is usually advertised in the paper—usually on a Monday in the Financial Times. If noble Lords look at the Financial Times on a Monday, they will see businesses for sale; those are mostly pre-pack transactions. If no competing offer has been made by the Thursday, the administrator has tested the market and this is therefore the best available offer. The pre-pack can then be completed and the business rises like a phoenix from the ashes of the old, often being run by the same people who got it into trouble in the first place—but, of course, without all the creditors, who have been sloughed off along the way.

As a concept, pre-packs have considerable political appeal. Governments, local Members of Parliament and councillors can trumpet the fact that their actions have saved, say, 200 jobs. However, no one counts the jobs lost or the financial damage done to suppliers, to other firms locally or, indeed, to the Pension Protection Fund, whose position and role was carefully debated yesterday afternoon in relation to moratoriums. Indeed, the Minister kindly sent us an email this morning indicating that the Pension Protection Fund will have a particular place in moratoriums. So what we have is a superficially attractive mechanism but one that, in many cases, because of counterfactual information that you cannot gather, causes more harm than good.

For a number of years, other Members of your Lordships’ House and I pressed Governments of all political persuasions not to be seduced by the attractions of unregulated pre-packs. To their credit, the coalition Government under Vince Cable recognised the problems and set up a review, which was carried out by Teresa Graham and backed by research from the University of Wolverhampton. Six years ago, her 2014 report was accepted by the Government.

Among the report’s recommendations was the establishment of what is known as Pre-Pack Pool Ltd, a company with access to a pool of experienced businessmen who could give a view on whether a proposed pre-pack was fair. They could reach one of only three conclusions: that a proposed transaction was reasonable; that it would be reasonable if changes were made; or that it was unreasonable. The pre-pack pool was established and remains self-funded through charging £800 for each opinion it gives. However—this is the critical weakness in the edifice—reference to it was optional. The results have therefore been entirely predictable. Who wants to pay £800 if they do not have to? The more ruthless and one-sided your proposed pre-pack is, the less likely it is that you will want to refer it to the pool. This device therefore rewards the good guys and does not catch the bad ones.

Now the pre-pack pool is on the edge of collapse. It had only 10 referrals this year, according to an article in the Times. If it collapses, the last vestiges of independent third-party regulation of pre-packs will disappear. Amendment 57 seeks to remedy this problem by making it compulsory to obtain an opinion from the pre-pack pool that a proposed pre-pack is not unreasonable. As my noble friend Lady Neville-Rolfe pointed out in her remarks yesterday, the Government had the power to make referrals mandatory under the Small Business, Enterprise and Employment Act 2015 but that power has now lapsed. I imagine that she will wish to use her Amendment 60 to review that decision and see what else can be done to reinstate that power.

Finally, I referred in my opening remarks to the possible damage to the flagship change in this Bill: the moratorium. No one—but no one—will prefer to undertake a highly regulated mortarium if they can get away with a virtually unregulated pre-pack.

The potential abuses of pre-packs have long been identified. They were reported on by an inquiry set up by the Government and solutions from that inquiry were accepted by the Government six years ago, yet still nothing has been done. By contrast, we are now rushing through a series of entirely new, untested and potentially controversial changes to our insolvency laws while leaving this loophole unblocked. My amendment closes the loophole and provides for proper regulation in this area.

My noble friend the Minister has an open goal. I hope that he will put the ball in the back of the net. If not—somehow I suspect that he will not—will he tell the House whether the Government are prepared to see the pre-pack pool collapse? No ifs, no buts; if the Government are to bring forward legislation at some point in the future, as is the hallowed phrase, what will we do about the pool in the meantime? I urge him to give a yes or no answer so that we can have some confidence in the way this matter is being tackled through the department’s policies. I beg to move.

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

My Lords, we are aware of a technical problem meaning that those Members who are joining us remotely can hear us but not see us. We are working vigorously to bring about a resolution.

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[Lord Hodgson of Astley Abbotts]

My Lords, I thank all noble Lords who have spoken in support of this amendment and the amendment in the name of the noble Lord, Lord Vaux, and thank him for his support for the approach that we are taking. I particularly thank the noble Lord, Lord Mendelsohn, who has a lot of experience in this field; his evidence and his views were very persuasive indeed. To the noble Baroness, Lady Bowles, who was a co-signatory, I say that the reason that I chose “not unreasonable” as opposed to “fair and reasonable” was to put the bar as low as possible, so we had the least problem getting the government horse over the jump. But even this, apparently, is not good enough.

I found my noble friend’s answer thin—and this describes only half of what I feel. To describe this as imposing an additional requirement at this time seems an extraordinary justification; and to say that it is not right to depend on the pre-pack pool alone—the pre-pack pool was set up as a result of a government review—seems equally dubious logic. He says that we are going to discuss options of a right way forward—but we are about to come out of lockdown. The result of the pandemic will be hundreds of firms in very grave difficulties. Some of them need saving. But they need saving in a way that is fair to the creditors, to the pension fund regulator and all the other people involved. I do not think that discussing options as we go into that storm—which is coming; it is bound to come—is right. I heard what he said, I regret that he cannot take this forward and make at least some compromise suggestions, and I reserve the right to bring this back on Report. In the meantime, I beg leave to withdraw the amendment.

Amendment 57 withdrawn.

Corporate Insolvency and Governance Bill

Lord Hodgson of Astley Abbotts Excerpts

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

[Baroness Kramer (LD) [V]]

My Lords, my name is added to Amendment 14. I cannot better the speeches from my noble friend Lady Bowles and the noble Baroness, Lady Altmann. However, I ought to add a few words, because I am probably one of a small number of people in this House and the other place who have been a creditor to a company taken through the Chapter 11 process in the United States, as I was when I worked there for a major US bank.

It is not exceptional behaviour but standard practice to seek ways to accelerate payment to get it into the moratorium period. I would have been considered remiss in my responsibilities had I not made sure that, in the various legal contracts in which lending was arranged, clauses existed that would enable me to achieve that acceleration.

As I also know from my own experience, acceleration is not the only issue; there is also the ability to make sure that a bank can take security when a company finds itself entering into financial crisis. That helps to move the financial institution’s debts much higher up the food chain. I hope that the language in the various amendments that try to deal with this problem is understood as dealing with the issue of security as a mechanism for acceleration, and not just clauses which very directly achieve acceleration.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I put my name to Amendment 14. Before I speak to it, I draw the House’s attention to my entry in the register of interests.

I tabled a similar amendment in Committee, looking at how financial institutions and banks might game the system. When I listened to him, my noble friend the Minister seemed to give a positive answer—for which, many thanks—but when one reads col. 2094 of the Committee stage debate on 16 June, the words are not quite as strong as I had hoped. So I support Amendment 14 and want to press my noble friend a little further, for two reasons.

The first is what I might call the Pepper v Hart reason. Courts can go to debates in your Lordships’ House and the House of Commons and use Ministerial Statements and replies to discern what Parliament’s wish was when legislation was passed. Not a lot was said in the House of Commons, because it all went through in a single day, but the words of the Lords Minister, the noble Lord, Lord Callanan, have been quoted extensively and will be so in future. He will probably have a starring role in a number of law cases in the years ahead. So I hope, as we come to the dénouement of the Bill, that he will be able to lay out the case clearly, cogently and simply.

Insolvency can seem as dry as dust, but it is about people. It is about men and women who have struggled and given months and years of their life to building up a business, only to see it collapse before their eyes. Sometimes it is because of their incompetence, but often it is because of events over which they have absolutely no control, such as the pandemic. We therefore owe it to people like them to have absolute clarity about their position, their rights and their responsibilities.

I will go back to the real-life example I gave in Committee; I ask my noble friend the Minister to boil down his response when he comes to reply. A struggling company; a £10 million term loan; £1 million is in default, and a pre-moratorium demand has been made. The company goes into the moratorium. Of course, the £1 million is a pre-moratorium debt and is therefore covered, but that demand is a default on the whole loan. Therefore, using the financial services cover, the bank says, “I want the £9 million, thank you very much.” Has that hole been blocked in what my noble friend is putting before the House today? I thought he said that he was going to, but this is quite complicated. It would be helpful for the House, and indeed for the law courts in future, if he could make it clear that that is the case—that is, that banks cannot game the system and use a pre-moratorium event that is protected under the moratorium to enforce claims under the moratorium because they are financial services.

My second question concerns what I call the “Gulag issue”. In real life, in the example I gave, the act of default will mean that the company’s loan moves from its normal relationships to what is known as the “workout division”. Notwithstanding the sensitivities of the noble Baroness, Lady Kramer, the workout division is not a place for sensitive souls. It is charged, incentivised and tasked with enforcing the rights of the lender: the bank. Banking agreements have a good many pages of closely packed print, with all sorts of terms and conditions. So many times I have heard people say, “I got 1% off my interest rate and did not think about the other terms.” If your business is going to be successful because you are paying 1% less, you are in the wrong business. It is the terms and conditions that you need to look out for.

Let me give an example of how that might work. I invite noble Lords to look at their overdraft statement when they go home tonight. It will say something like this: “You will be charged 3.5% or 4% above the bank’s base rate for the time being”—what the bank’s base rate is is a good question in itself—“but for unauthorised overdrafts you will be charged 19%.” Deep in the terms and conditions for the company I am talking about, there will be a similar clause. When you default, your interest rate goes up. Do the maths. That £10 million at 19% less the 4% that you were expecting to pay—making 15%—equals £1.5 million a year, or £30,000 a week. These are the sorts of things, and there are many other ways in which banks can enforce their conditions.

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[Lord Callanan]

My Lords, the Government have listened carefully to the concerns raised by noble Lords in Committee and elsewhere.

Where used appropriately, pre-pack sales can perform a useful rescue function. In some instances, sales to connected parties are beneficial. However, we accept that the nature of the transaction and the speed with which it is carried out might also provide some opportunities for mischief. This could particularly be the case during the current crisis. The Government acknowledge that there may be a risk of an increase in the use of pre-pack sales, which could adversely affect businesses already struggling as a result of Covid-19.

The Government therefore propose amendments to revive the power, which expired in May 2020, to regulate sales in administration to connected parties, and to introduce a similar power in Northern Ireland. These government amendments will revive paragraph 60A in Schedule B1 to the Insolvency Act 1986. This will enable the Secretary of State to make regulations to prohibit or impose requirements or conditions in relation to the sale of property of a company by the administrator to a connected person, in circumstances specified in the regulations. This power will expire at the end of June 2021, unless it is previously exercised.

The amendments will also insert a new power in Schedule B1 to the Insolvency (Northern Ireland) Order 1989 to enable similar regulation of sales to a connected person in Northern Ireland. This power will also be time limited until the end of June 2021, unless previously exercised. Regulations made under the power in Northern Ireland must be laid in draft and approved by a resolution of the Northern Ireland Assembly. And we are going further: ahead of using the power, we will publish the Government’s review of existing voluntary measures in respect of pre-pack sales this summer to help further inform the public debate on this issue. I beg to move.

[Lord Hodgson of Astley Abbotts]

My Lords, I have Amendment 45 in this group but, before I speak on it, perhaps I may say that I entirely support the Government’s Amendments 37 and 38. They are very sensible and have my unequivocal support.

I turn to Amendment 45, to which the noble Lord, Lord Vaux, the noble Baroness, Lady Bowles, and my noble friend Lady Altmann have added their names. I am most grateful to them and indeed to other noble Lords all across the House who have been in touch with me to say that it seems a sensible way of proceeding. We discussed this matter at length last Wednesday. I shall try to avoid repeating myself, although of course I need to fill in the story for those who have just joined in at this stage.

Like my noble friends Lord Callanan, Lord Leigh and Lord Holmes of Richmond, I recognise that pre-packs have their uses. As I said in the debate last week, they are a useful spanner in the toolbox of the insolvency practitioner. However, they are open to serious abuse, as my noble friend Lord Callanan admitted a moment ago. Let us quickly run through a real-life example, and here I will slightly repeat what I said last week.

I ask noble Lords to imagine the following. You are a director of a company that is struggling because of past operating losses, which have led to large debts being accumulated; or perhaps it is a very old, established engineering or industrial company that has a long tail of pension liabilities that get increasingly heavy. Insolvency and administration loom over you, but you and your fellow directors feel that somewhere in the business is a really profitable activity. However, the company is worth saving only if you can get rid of all your debts. Therefore, you, as a group of directors—maybe with some associates—find an administrator and say that you would like to make an offer for the bits that you want. That offer might be very substantial but, equally, it might be £1 or £1,000. That is the key to the problem that we are trying to tackle here. Nobody can say that anything is wrong where a fair-value, full-price offer is made.

You make a nominal offer on, say, a Friday, which means that the company is put into administration over the weekend. On Monday, you advertise it in the newspapers and after four days, if the administrator has had no competing offers, he or she can say that they have tested the market and have obtained a fair price. It is of course vanishingly unlikely, although possible, that within four days anybody will be able to come up with an offer de novo, from a standing start. Your group, having paid the money to the administrator, is now the proud owner of a company that is without all its liabilities to suppliers great and small, local and national, as well as to the Pension Protection Fund—but you might be the very people who led the company to the edge of disaster in the first place.

Many in your Lordships’ House would ask “How could this possibly be?” It has an awfully superficially attractive political ring to it. A Minister, a councillor or a Member of Parliament can get up and say, “Look, I’ve just saved 300 jobs.” That sounds awfully good, but nobody weighs on the scale what is happening elsewhere. For every debt that you have written off, another company loses money. It might be a small local supplier that might have to make redundancies of its own and might itself, in extremis, go into receivership. There is also the general damage to the local economy, as there is to the Pension Protection Fund. This has always seemed to me, at least, to be a very unfair way of proceeding unless it is properly supervised.

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Moved by

[Lord Hodgson of Astley Abbotts]

45: After Clause 17, insert the following new Clause—
“Review of pre-pack transactions
In Schedule B1 to the Insolvency Act 1986, after paragraph 74 insert—“Review of pre-pack transactions(1) The assets of a company may not be transferred under the terms of a pre-pack transaction unless the proposed purchaser has obtained an opinion in writing from a member of the pre-pack pool that the transaction is not unreasonable.(2) In this paragraph, a “pre-pack transaction” means a transaction which is negotiated before a company enters administration, and under which all or a substantial part of the company’s assets are sold to an associate on or shortly after the appointment of an administrator.(3) For the purposes of sub-paragraph (2), “associate” has the meaning given in section 435 of the Insolvency Act 1986.””Member’s explanatory statement
This new Clause requires a positive opinion to be obtained from a member of the pre-pack pool before a company enters into a pre-pack transaction. The pre-pack pool is an independent body of experienced business people set up in response to the recommendations of Teresa Graham’s report.

[Lord Hodgson of Astley Abbotts]

My Lords, I listened carefully to what my noble friend said a few minutes ago. He will not expect me to be delighted by it—it was very disappointing. Perhaps I may deal with the objections that he raised, as it is worth while to do so briefly.

My noble friend gave three reasons why the pre-pack pool should not be given the powers to control or regulate pre-pack transactions. The first was that, where the creditors wanted to go ahead, a transaction could be frustrated by a pre-pack pool member saying that it could not. His officials should get a life. The creditors are at the bottom of a waterfall and, if they say that they want it to go ahead, it should, although it will probably never happen in that way. Also, my amendment refers to the transaction not being “unreasonable”: it sets a very low bar.

Secondly, my noble friend said that the definition of “associate” was faulty. I have no pride in this. If he changed the definition of “associate”, I would accept that. He has the definition in his hands and can do with it what he wishes.

Thirdly, why did the Government set up a single pre-pack pool if they wanted only a single source of permissions? It was perfectly simple. It is worth noting that the pool is set up by professional bodies. When, a week ago, I said that there were conflicts of interest in the appointment of monitors, he said to me, “No, we don’t need to worry about that because it is run by professional bodies, and they will make sure that they have codes of conduct, which means that there will not be conflicts of interest. Therefore, I should not accept your amendment.” That applies just as much to the pre-pack pool, which is the product of a series of highly respected professional bodies.

My noble friend also said—I was delighted to hear this—that those running the Pension Protection Fund have said that there had been no trouble with pre-packs. Long may that last.

My noble friend also said that a review would be available this summer. However, we do not need a review; we need somebody in charge to do something while we come out of a pandemic. That is the whole purpose of my amendment. We are not looking for a review; we are looking for something better than the pre-pack pool to be put in place. To be fair to the Government and to my noble friend, the chances of the Government being able to find the time to produce this important but small reform with everything else that is going on are vanishingly small. Therefore, we will be living with the situation where pre-packs are unregulated post the collapse of the pre-pack pool.

To come to the point, I want to keep the pre-pack pool in existence, and that is what my amendment is about. It is not about politics; it is about good business practice. It is about fairness and about helping the deserving case and stopping the crooked one. It is about protecting firms and suppliers from being ripped off, and it is about assisting the Pension Protection Fund.

I was very sad to hear the noble Lord, Lord Stevenson, whom I have always found to be a man of discerning judgment, speaking on behalf of the Labour Party and saying that he could not support the amendment. Instead, he is creeping away from the sound of the battle and covering himself with the fig-leaf that somehow we should not endow non-statutory bodies with statutory powers. If that is a big constitutional point, we might have heard about it when he spoke about this at earlier stages of the Bill.

In conclusion, those who read their Damon Runyon will be familiar with a character called Harry the Horse, whose catchphrase was, “Put up or shut up”. After 15 years on this subject, during which we have had no real action from the Government, the time has come for those of us who believe that fairness is what we should be aiming for to “put up”. I beg leave to test the opinion of the House.