Trade Bill

Viscount Trenchard Excerpts

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Tuesday 6th October 2020 Grand Committee

[The Deputy Chairman of Committees (Baroness Finlay of Llandaff) (CB)]

I now call the noble Lord, Lord Beith. As we seem to be unable to reach the noble Lord, Lord Beith, we will move to the noble Viscount, Lord Trenchard.

[Viscount Trenchard (Con)]

My Lords, my noble friend Lady McIntosh of Pickering has already intimated that she expects that I will be presenting a different viewpoint from that which most noble Lords have presented on these matters, and she is completely correct, although I was indeed most happy to have support for what I am going to say from my noble friend Lady Noakes and, to some extent, from my noble friend Lord Caithness.

As I am one-quarter American—my mother was half-American and my grandmother was a farmer in Illinois and Iowa—I strongly resent the widely held belief encouraged by the Daily Mail that American food is bad and inherently worse than ours. I think the noble Baroness, Lady Henig, criticised food safety standards in the United States quite strongly and quoted Henry Dimbleby, but she quoted him selectively. He also said in his report:

“But negotiating trade deals is hard. Any blanket legislation requiring other countries to meet our own food guidelines would make it nigh-on impossible. We already import many food products from the EU that don’t meet UK standards. A blanket ban would make it impossible to continue trading even with this most closely aligned of partners.”


Chickens reared in Poland also come to mind, where stocking densities are massively higher than what we tolerate in this country. Are we quite as good as we think we are? From what I have been reading about pollution in the River Wye and other waterways in Herefordshire and the west country, I am not so sure.

To my noble friend Lady McIntosh, I would say that she is correct that the WTO permits countries to apply higher than international standards to food production, but only when it is not for protectionist reasons, and only when justified by science. The WTO has found the EU bans on GM crops and on hormone-treated beef not to be consistent with that: in other words, it does not believe that the science justifies the ban. Indeed, examination of the science behind the ban on hormone-treated beef suggests that the incidence of the hormone substance in the beef is absolutely minuscule and of no great significance: far less, for example, than found in half a dozen free-range eggs, commonly available in any supermarket.

I believe that the amendment in the name of the noble Lord, Lord Grantchester, is unnecessary, and since the Department of Health, the Food Standards Agency and other bodies have the statutory powers to maintain food safety, I am surprised that he sees it as necessary. I oppose his proposal to require trade agreements to comply with retained EU law relating to food standards, for the reasons I just mentioned. As noted in a previous debate, it will be a matter solely for the UK to decide on our food safety standards in future. The noble Lord is also misguided in thinking that all EU rules contribute to the maintenance of high safety standards: some do not. For example, the incidence of campylobacter infection in the UK is five times what it is in the United States because EU regulations prohibit the washing of poultry products in peracetic acid. I think it likely that in this respect, the US, as well as some other countries, might well have an issue with the UK’s food standards.

My noble friend Lord Caithness said that what is described by most noble Lords as “chlorine rinsing”—that is actually out of date, because peracetic acid is generally used instead of chlorine—has nothing to do with food safety. Indeed, American chicken tastes very good, so I agree with my noble friend. When I go to America, I do not worry about eating chlorinated chicken: it is not bad, it has nothing to do with food safety.

The noble Lord, Lord Purvis of Tweed, stated that his Amendment 23 is similar to a government amendment made to the Trade Bill introduced to your Lordships’ House in 2019. That may be so, but I nevertheless hope that my noble friend the Minister will resist it, for the reasons I have mentioned. UK levels of statutory protection will in future be a matter to be determined by UK statutory agencies and this Parliament. The same applies to Amendments 24 and 25 in the name of my noble friend Lady McIntosh. I think my noble friend’s attention to animal welfare standards compromises her attention to food safety. Furthermore, her Amendment 25 shows that she thinks standards are two-dimensional, higher or lower, rather than multidimensional. I ask the Minister to confirm that the UK will not enshrine in law any measure that treats EU and UK standards as identical. This does not mean that I am suggesting that the UK should depart from its current high standards in connection with the environment, food safety and workers’ rights.

Trade Bill

Viscount Trenchard Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Thursday 1st October 2020 Grand Committee

[Lord Lansley (Con)]

[Inaudible.]—the view of the right reverend Prelate the Bishop of St Albans that the Government are genuinely committed to achieving our environmental and climate change objectives. In so far as I depart from him and others, it is not in relation to that but in relation to the effect of the amendments.

The amendments in this group have a number of different effects. Amendments 12 and 40 essentially bear upon the agreements to be implemented using regulations made under Clause 2, which, as the Bill is presently constructed, are the roll-over agreements that we started with from the European Union. I have no reason to understand—unless somebody tells me otherwise—that any are inconsistent with our environmental obligations, so I do not understand why it is necessary to put amendments in the Bill to tell us that we should not implement them if they are contrary to those obligations since I do not think that is the case. That is step one.

Step two is that a number of these amendments go further. They want to construct what is essentially a structure for mandating the Government to enter into future international trade agreements only in ways consistent with our international obligations on the environment and a series of other specific requirements. We will encounter this argument again and again during scrutiny of the Bill. My view is that while the Bill is an appropriate mechanism for us to improve the process of scrutiny of future trade agreements, it is not right in this legislation to attempt to construct a list of what the Government are intending to achieve in future trade negotiations. It would be a very long list. Having constructed such a long list, the Government would be unable to conduct any of those trade negotiations with any negotiating flexibility whatever. People could just look at the legislation and say, “We know what the British Government can do, and it is not very much”.

Mandating international trade negotiators in advance also means that we would trespass into the territory of removing from Governments the executive power of the prerogative and executive prerogative. We could do it, but if we are going to do it, we should do it in the context of a major piece of legislation which sets up a statutory framework for doing so. We have no such statutory framework, and I do not think we can conceive that it should be added to piecemeal in this way. I therefore cannot agree with most of Amendments 40, 69 and 73.

Amendment 21 appears to have been constructed simply to prevent the Government implementing any trade agreement with the United States. I do not know of any country outwith the criteria other than the United States, it having issued notice of withdrawal from the Paris Agreement. If I understand the amendment, it would come into effect on 20 November 2020 at the earliest. Expressing a purely personal view, I hope that will not happen and that it will not be necessary.

I want to mention one or two other small things. I do not understand Amendment 14 at all since it seems to replicate what is already in the Bill. We are intending to implement agreements similar to, or the same as, those we entered into as a member of the European Union. If it is saying something other than that, it would introduce a degree of ambiguity which I do not think is desirable.

Amendment 22 does something completely different. It removes the power to modify retained direct principal European Union legislation. We went over this in some detail the previous time this Bill was before us, two years ago. I still do not understand why this is necessary in so far as the power is already in the Government’s hands under Schedule 8 to the EU withdrawal Act 2018. Perhaps the Minister will explain why it is additionally necessary to legislate in this way now.

Finally, although the noble and learned Lord, Lord Judge, is not with us, his spirit moves with us none the less. If one looks at Clause 2(6) one will see that line 26 states:

“Regulations under subsection (1) may, among other things, make provision”


and then there is a list. On 20 March 2019, the noble and learned Lord, Lord Judge, asked what “among other things” meant and why that phrase was there. The subsection is there to say that the regulations may make provision in a number of specific respects, but the drafters have given Ministers additional freedom to do what exactly? Since these are roll-over agreements, it seems to me that the words “among other things” are not necessary. At the time, my noble friend Lady Fairhead said that it was an interesting point and she would take it away and think about it. Therefore, if they have thought about it, they have put it back in the Bill having thought about it, or else they did not think about it and have simply reproduced the Bill and it is as pointless now as it was then. Perhaps the Minister will kindly tell us what “among other things” in that line means.

[Viscount Trenchard (Con)]

My Lords, I understand the intention of the noble Lord, Lord Grantchester, and the other noble Lords who have signed his Amendment 12. As the Committee should be aware, the United Kingdom has been a leader in standing up internationally for high environmental standards around the world. As the Minister made clear at Second Reading, all the continuity agreements that we have been and are negotiating are fully compliant with our international obligations, including the Paris Agreement on climate change. It is unnecessary to constrain the Government’s freedom in negotiating trade agreements with countries, including developing countries which may not have adopted the same environmental standards as we have, because that might have unintended consequences. Furthermore, the Paris Agreement targets only carbon reduction, but does not fully address the equally great national security challenge of providing clean energy for the whole planet, particularly in a world that needs more energy, not less.

As for Amendment 14 in the name of the noble Lord, Lord Stevenson of Balmacara, and my noble friend Lady McIntosh of Pickering, I am not quite sure what its purpose is. As I understand it, it would prohibit the application of the powers created in this clause for the purposes of an enhanced continuity trade agreement such as that which we have agreed with Japan. Why would the noble Lord and my noble friend wish unduly to restrict the freedom of our negotiators to take any available opportunity to include enhancements to any continuity agreement?

As for Amendment 21 in the name of the noble Lord, Lord Oates, I oppose it for the reason suggested by my noble friend Lord Lansley. It seems to me that it is designed to prevent a trade agreement with the United States, and that would have a negative effect on the economy and deny opportunities to British exporters and food producers.

Amendment 40, also in the name of the noble Lord, Lord Oates, is similarly unnecessary. In any case, your Lordships have received repeated assurances that none of our continuity agreements will deviate from the high standards that we apply to environmental issues, similar to human rights, as debated in a previous group. The Minister has already reassured the Committee that the Government will continue to publish parliamentary reports with each continuity agreement.

It will not surprise my noble friend Lady McIntosh of Pickering to hear that I do not support her Amendment 69. It is clear that the Food Standards Agency has the powers to permit, or not, the sale of any foods which might be imported under FTAs. The amendment also seeks to require alignment of our agricultural marketing standards with those of the EU, which we have left. I agree with my noble friend that high animal welfare standards are a laudable objective, and we have done relatively well in this country in this area. However, I think she is incorrect to argue that animal welfare is exactly the same as animal health and hygiene. We will be free to set our own regulations after the end of the transition period. I earnestly trust that we will move quickly to adopt standards that are WTO compliant, unlike those of the EU, which in certain respects conflict with the WTO’s SPS agreement.

As my noble friend the Minister said at Second Reading, it is not within the gift of the UK Parliament to legislate on animal welfare standards for overseas countries. The Government have been clear that we have no intention of lowering standards, and we have fulfilled this commitment through our deeds. None of the 20 agreements already signed has reduced standards in any area. As the Minister said at Second Reading, it will be the job of the food standards agencies to ensure that all food imports comply with the UK’s high safety standards and that consumers are protected from unsafe food that does not meet those standards. Decisions on those standards are a matter solely for the UK and are made separately from any trade agreements. I ask the Minister to confirm that that remains the Government’s position.

For similar reasons, I am also opposed to Amendments 73 and 74 in the name of the noble Baroness, Lady Jones of Moulsecoomb. In any case, does my noble friend the Minister not agree that the Government would obviously not seek to enter into an international trade agreement without any merit with any nation? Neither should we expect only to enter into agreements which share precisely our positions on all multilateral environmental agreements.

[Baroness Northover (LD) [V]]

My Lords, there is surely nothing more important than addressing climate change, as the noble Baroness, Lady Hayman, and others have made clear. It is difficult to see that any trade agreement could possibly be justified if it is in contradiction to what must be an overriding national and international aim. Trade agreements must at the very least be consistent with our climate goals, and certainly must not undermine those commitments. I am sure that the noble Viscount will note the cross-party nature of many of these amendments.

My noble friend Lord Oates is very sorry that he cannot be here today, as he is attending a funeral. Amendment 12 in the name of Lord Grantchester and others, including my noble friend Lord Oates, means that any trade agreement we make must be consistent with our commitments under the Paris climate change agreement, CITES and the Convention on Biological Diversity. That is surely a given, and yet we know that this does not mean that such aims are built into trade deals. In Amendment 21, my noble friend Lord Oates and others make the case here stronger still: that trade deals can be made only with those who have signed up to the Paris Agreement, or not served notice that they intend to leave.

If after the debate we heard in the United States this week the American people decide that they wish to have Mr Trump as President for the next four years, then no trade deal could be undertaken with the United States, which will have pulled out of the Paris Agreement by then, having given the necessary three years’ notice and a fourth year to implement that—the four-year provision that President Obama very sensibly put into the Paris Agreement.

Energy White Paper

Viscount Trenchard Excerpts

Monday 28th September 2020 Lords Chamber

[Lord Callanan (Con)]

I understand the concern in north Wales about this issue but Hitachi made it clear that withdrawing from the Wylfa project is a commercial decision that it has taken for its own domestic and business reasons. We understand that it is disappointing. We remain willing to discuss any new nuclear projects with any viable companies and investors wishing to develop sites in the UK, including that at Wylfa.

[Viscount Trenchard (Con) [V]]

My Lords, following on from the question asked by the noble Lord, Lord Wigley, repeated delays in the publication of the energy White Paper and the failure to publish a response to the consultation on a regulated asset base model for nuclear that closed nearly a year ago have contributed to the doubt and uncertainty surrounding the Government’s future commitment to new nuclear projects, such as that at Wylfa. Does the Minister agree that it is now crucial that the Government send an urgent message to the Japanese Government saying that they are committed to working with them to develop a framework under which the project that was supposed to provide 7% of our electricity by the mid-2020s can be revived as a UK-Japan joint project?

[Lord Callanan (Con)]

As I just said, the decision taken by Hitachi was a commercial one. We totally agree that nuclear power will play a key role in the UK’s future energy mix as we transition to a low-carbon economy, and we already support investments in small and advanced modular reactors.

Japan Free Trade Agreement

Viscount Trenchard Excerpts

Thursday 17th September 2020 Lords Chamber

[Lord Grimstone of Boscobel (Con)]

Again, I thank the noble Lord for his comments. There is a specific SME chapter in this agreement. It goes further than the previous EU chapter and the whole intent of that chapter is to make it easier for our SMEs to trade with Japan. Further details will be available on that in due course. I have not seen any assessment in relation to the EU of the sort that he mentioned, and I dare say that it has not been thought necessary because of the overwhelming view in this country that we should leave the European Union, which indeed we did on 1 January this year.

[Viscount Trenchard (Con)]

My Lords, I declare my interests as stated in the register. I am delighted that we have agreed a free trade agreement with Japan and strongly welcome the Statement made in another place by my right honourable friend. As the Secretary of State said, the deal will

“unleash a new era of mutually beneficial economic co-operation with our great friend Japan”.

Against this background, does the Minister agree that it is a great disappointment that Hitachi decided yesterday to change the status of the Horizon nuclear power station project at Wylfa and Oldbury from suspended to cancelled? It is of some comfort that Hitachi has said that it will keep the lines of communication open with government and other key stakeholders regarding future options at both our sites. Can my noble friend confirm that the Government have sent an urgent message to the Government of Japan and Hitachi that they want strongly to work together to find a way of reviving this important project in the interests of all stakeholders?

[Lord Grimstone of Boscobel (Con)]

I thank my noble friend for his comments about the agreement and I am well aware of his great expertise in Japan. As the Minister for Investment, of course it is always a matter of great regret for me if a major company decides not to pursue an investment opportunity in the United Kingdom. My noble friend will realise that nuclear has a huge number of manifestations; these are very large decisions that companies will take. We have maintained contact with Hitachi throughout the process. I believe that this was a decision by the Hitachi board. I have no information in what circumstances it might choose to revisit that decision, but I will say that I have huge admiration for Hitachi. I have spoken to Hitachi at the most senior levels on a number of occasions, and we would always welcome any investment from Hitachi into the United Kingdom.

Renewable Energy

Viscount Trenchard Excerpts

Tuesday 15th September 2020 Lords Chamber

[Lord Callanan (Con)]

The noble Lord makes a very good point. I hope we will see more hydrogen-powered buses in the front so that we do not miss them. We have an excellent hydrogen strategy. We are investing considerable sums in developing hydrogen. We will have further announcements to make on the subject.

[Viscount Trenchard (Con) [V]]

Does the Minister not regret that the recommendations fail to take account of the importance of nuclear power as a reliable, firm, low-carbon baseload element in our energy mix? Should the Government not immediately inform the Japanese Government and Hitachi that they consider it of the utmost importance to revive the Horizon nuclear power station project at Wylfa, Ynys Môn? Will my noble friend also confirm that the Government still intend to contribute to its funding through the construction phase, which would greatly lower the cost of electricity generated? Given the likelihood that Hitachi will cancel the project tomorrow, should the Government not acquire the Horizon site to preserve options for its future?

[Lord Callanan (Con)]

As I said in previous answers, I agree with my noble friend that new nuclear can play a role as we seek to transition to net zero. It is the only technology that is currently proven, and can be deployed on a sufficiently large scale, to provide continuous low-carbon power. We will be prepared to support further new nuclear projects in the years ahead if they can show that they provide value for money. We continue to engage with all developers.

Motor Sector: Export Markets

Viscount Trenchard Excerpts

Monday 14th September 2020 Lords Chamber

[Lord Grimstone of Boscobel (Con)]

My Lords, the UK-Japan agreement contains standard FTA provisions on subsidies. Motor manufacturers, including those in the north-east, and their representative organisation have strongly welcomed the UK-Japan deal. These subsidy chapters in trade agreements help ensure that fair and open competition exists for both parties by working to limit the effects of trade-distortive industrial subsidies. The subsidies chapter in this UK-Japan FTA rolls over the provisions from the EU-Japan EPA.

[Viscount Trenchard (Con) [V]]

My Lords, can my noble friend the Minister tell the House what opportunities there are for UK motor manufacturers to diversify their supply chains so as to widen their sources of parts production to third countries which may be able to supply equivalent high-quality parts at competitive prices? Can he also say whether such opportunities will be only with countries with which we will have entered into FTAs by 31 December 2020, or whether they also include countries with which we expect to trade on WTO terms?

[Lord Grimstone of Boscobel (Con)]

My Lords, my noble friend makes an excellent point. Of course, these supply chains cannot be turned off and on overnight, but I have no doubt that our FTA programme in general is already helping auto manufacturers in this area, and our new Japan EPA has already demonstrated this utility. Our automotive sector deal supports the industry’s ambition to increase the level of UK content by value in domestically built vehicles to 50% by 2022, so we do not have to see these supply chains only located overseas. It is of course a huge benefit to the United Kingdom if they can be located in our country as well.

Trade Bill

Viscount Trenchard Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Tuesday 8th September 2020 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I too congratulate my noble friend Lord Grimstone of Boscobel and the right reverend Prelate the Bishop of Blackburn on their excellent maiden speeches. I have known my noble friend for very many years since we worked together under the British invisible exports programme in the 1980s. I look forward to assisting him in taking the Bill through the House and to many future contributions by him and by the right reverend Prelate.

I believe that the powers contained in the Bill to join the GPA, to enter into continuity trade agreements and to set up and supervise the new Trade Remedies Authority are appropriate and proportionate. One benefit of Brexit is that we will resume our place on the world stage as an independent trading nation and a leading advocate at the WTO and other international fora of rules-based, free and fair trade. This is the way to build maximum prosperity for all our people and indeed for our trading partners.

It is right that we should not try to restrict access to public procurement projects to British firms alone, although under the rules of the GPA we will be free to restrict access for foreign companies where there is a good reason to do so. In the main, exposing British firms to international competition helps keep them competitive, both to their benefit and to that of the taxpayer. British firms obviously enjoy an advantage in domestic bids, and I believe that many of our successful businesses will also continue to win a significant number of contracts in the international public procurement market, worth around £1.3 trillion a year.

The Bill provides the Government and the devolved Administrations with the necessary powers to implement the changes in domestic law necessary to implement continuity free trade agreements. As my right honourable friend the Secretary of State said in her Second Reading speech in another place, the Government have defied the sceptics by already signing 20 such FTAs, representing 48 countries and 74% of continuity trade, and are making good progress on enhanced or new FTA negotiations with Japan, the United States, Australia and New Zealand.

I was very pleased to hear that the Government are also prioritising accession to the CPTPP, which will provide a framework for improved access to its members’ markets for British exporters, including agricultural exports. Can the Minister tell the House when he expects formally to apply for accession? In my 11 years as a resident of Japan, I noticed that the Japanese do not eat much cheese, especially blue cheese such as Stilton. I doubt that delaying further the successful conclusion of our bilateral FTA with Japan in order to sell it more cheese would be in our interests, especially because it has provided significant market access for such products through the CPTPP.

I welcome the other provisions in the Bill—those establishing the Trade Remedies Authority and the provision that sensibly enables the Government to collect and share data. I look forward to the contributions of other noble Lords and to the Minister’s reply.

Corporate Insolvency and Governance Act 2020

Viscount Trenchard Excerpts

Wednesday 29th July 2020 Lords Chamber

[Lord Callanan]

My noble friend is correct; my information is also that there is currently only one company taking part in the moratorium process, so it is too early to say how the measure will proceed. Clearly the role of the monitor is crucial, but as I said, we will review the effectiveness of these provisions in due course.

[Viscount Trenchard (Con)]

My Lords, on 23 June, the Minister told your Lordships’ House that he would monitor the operation of the moratorium closely once the Act came into force and that he would not hesitate to take action if it was required. It is clear from his Answer to my noble friend that action is required. Besides the very sensible proposal by my noble friend to extend the purposes of a moratorium to include the rescue of a business, rather than of a company as a legal entity, does the Minister not also agree that the exclusion of companies that have issued bonds amounting to £10 million has significantly and unnecessarily restricted uptake of the new provisions?

[Lord Callanan]

We are monitoring the operation closely, but as currently only one company is in the process, it really is too early to say how it will work. The exclusion relating to bonds is to protect financial stability. A moratorium could impact on the rating of those bonds and therefore the exclusion ensures the effective functioning of financial markets.

Corporate Insolvency and Governance Bill

Viscount Trenchard Excerpts

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

[Viscount Trenchard (Con)]

My Lords, I am also minded to support Amendment 1, moved by the noble and learned Lord, Lord Hope of Craighead, because it should not be too difficult a task for the directors to undertake and would be likely to save time afterwards, once the monitor starts his work. However, given that the noble and learned Lord has expressed satisfaction with what the Minister wrote to him, far be it from me to doubt his learned judgment on that matter.

I speak in support of Amendment 2 and the other amendments tabled by my noble friend Lord Leigh, to which I have added my name. I declare my interests as listed in the register. I know a little about corporate restructurings, having worked in corporate finance and mergers and acquisitions for some 40 years. I thought that the amendments proposed in Committee by my noble friend made obviously good sense, and I have heard nothing from the Minister that causes me to change my mind—at least, so far.

As I mentioned in Committee last week, this question was discussed during the debates on the Enterprise Act 2002. My noble friend Lord Hunt of Wirral said in the debate in Committee that

“the greatest asset of a company is the people whom it employs … I believe that rescuing the company on its own is a pointless objective … the objective of preserving all or part of the company’s business would be beneficial to the employees of the business, creditors of the company who may be paid out of the proceeds of the sale of the business or from future profits, and of course it would be beneficial to the economy as a whole”.—[Official Report, 29/7/02; cols. 764-65.]

My noble friend Lord Hodgson of Astley Abbotts said on Report that

“by inserting … ‘and the whole or part of its business’… an administrative receiver or administrator”

would be empowered

“to deal even-handedly with the whole or part of the company’s business.”—[Official Report, 21/10/02; col. 1102.]

Of course, the views of my noble friends in 2002 related to a different Bill from the one before your Lordships’ House today, but I nevertheless believe that their comments are equally relevant to the points we are considering now. New Section A6(1)(e) requires a monitor to say that in his view it is likely that a moratorium would result in the rescue of the company as a going concern. Even if the monitor thinks that the company’s business, or some part of it, would be rescued if the company could obtain a moratorium, this would not provide sufficient grounds for the court to grant a moratorium.

Under the Enterprise Act 2002, obtaining a moratorium through administration is not as restrictive as proposed under the provisions of the Bill. It is necessary for an administrator to show that there is a reasonable likelihood of achieving one of three statutory objectives: rescuing the company as a going concern; achieving a better result for the creditors as a whole than would be likely on a winding up; and realising property in order to make a distribution to secured or preferential creditors. The second of those objectives is the one most often relied on as it includes the rescue of a business or one or more of several businesses when, as is often the case, it is impossible to show that the company as a whole can be rescued.

Prior to 2002, the position was the same, although the purposes of administration were not precisely the same. They were: the survival of the company and the whole or part of its undertaking as a going concern; the entering into of a creditors’ voluntary arrangement; the sanctioning of a scheme under Part 26 of the Companies Act; and a more advantageous realisation of the company’s assets than would be effected on a winding-up. Again, the last of those four options was the one relied on where, even though a company was doomed because of the burden of debt, its business or a part of its business could be rescued.

Under the new moratorium procedure, the only type of restructuring proposal that can be advanced is one that involves a company rescue. This means that the options available in a moratorium are significantly more limited than they would be in an administration. Perhaps the Minister can tell the House whether the Government are deliberately trying to restrict the use of moratoriums and do not want to give the directors that degree of freedom if they are trying to save the business but not the company.

However, very often when a business is successfully rescued the company may also be rescued, although that category of company would not be able to use this new procedure. I understand that the Government believe that if rescuing a company’s business were sufficient grounds for a moratorium to be granted, the company would be tempted to use the moratorium to prepare for a pre-pack administration. If this is the case, perhaps my noble friend the Minister could explain to the House why the Government think so.

As my noble friend Lord Leigh has already explained, companies as legal entities are hardly ever saved in an insolvency situation and the connection between widening the grounds for entering a moratorium and the possible abuse of the pre-pack mechanism is, I believe, tenuous at best. Pre-packs have developed as a mechanism for selling a company’s business immediately after it goes into administration, so that the administrator—not the directors—is responsible for breach of duty if the business or assets are sold for less than fair value. The moratorium is surely intended to prevent creditor action, but creditor action has never been a check on an abusive pre-pack. It would be a pity if the moratorium were to be limited to cases in which a debt restructuring is the only way forward, rather than other forms of business rescue.

In conclusion, I think that the Minister has shown great wisdom in introducing so many amendments to dispense with Henry VIII powers, which the Government had thought they might wish to include—although I share my noble friend Lord Leigh’s reservations about some of them in the event that they may restrict the Minister from providing enough comfort on the points that he and I have raised.

[Baroness Drake (Lab) [V]]

My Lords, I refer to my entry in the register of interests and shall speak to Amendment 13 in my name. In this group the Government have brought forward helpful amendments to seek to prevent bank debts and other financial lendings that are accelerated during the moratorium from gaining super-priority status. This is a welcome change. However, serious risks remain of gaming to give current or future lenders access to super-priority, avoid pension liabilities and incentivise insolvency over rescue for certain creditors.

Amendment 13 would remove the exemption which payments in respect of pre-moratorium debts arising under a contract or instrument of financial services have from the payment holiday and from super-priority in the event of an insolvency process. Notwithstanding the Government’s amendments, real concerns remain that lenders may be able to circumvent their intent by the drafting of their lending agreements; the definition of accelerated debt could be sidestepped so that lenders can continue to bring forward debt and benefit from super-priority. It is unclear, for example, whether on-demand debt that is called during the moratorium would be caught by the definition of accelerated debt and debts accelerated prior to the moratorium would continue to be granted super-priority.

Adding to these concerns is the width of the definition of financial institution debt which would qualify for super-priority, covering intra-company loans, for example. In addition, finance debts due prior to or in the moratorium continue to be exempt from the payment holiday. Debts due to the pension scheme are not, would not be payable and would be outranked in subsequent insolvency. That exemption and the super-priority given to that financial debt, which are permanent provisions within the Bill, will inevitably lead to novel forms of moral hazard when it comes to pension liabilities.

This is a fast-track Bill containing permanent, major changes and scrutiny has consequently been fettered, but government Amendment 80 in this group gives a power enabling the Secretary of State, by regulation, to change the definition of moratorium debt and priority pre-moratorium debt. This is a welcome concession by the Government, because it implicitly recognises the arguments that many noble Lords have made that it allows the Government to respond to actual experience of gaming and perverse behaviours. Will the Minister confirm that the intention of Amendment 80 is to allow the Government to quickly address the risks other noble Lords and I have identified when they emerge and to change the definition of moratorium debt and priority pre-moratorium debt in response? Will the Government commit to monitor closely the impact of the provisions on moratorium debt and priority pre-moratorium debt, and to consult relevant bodies on the real concerns around super-priority status, the definition of accelerated debt and the implications for pension scheme debt?

Corporate Insolvency and Governance Bill

Viscount Trenchard Excerpts

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

[Lord Adonis (Lab) [V]]

My Lords, I thought that the noble Lord, Lord Hodgson, made two very powerful remarks earlier in the debate when he said that this Bill seeks to do two separate things. The first is to introduce the emergency provisions in respect of the crisis we are in, and the second is making permanent changes to insolvency law. He also drew attention to the absolutely devastating report on the Bill by the Delegated Powers and Regulatory Reform Committee, which highlights a wider set of Henry VIII clauses than I have ever seen in a Bill of this kind, including the whole definition of which companies are affected by it under new Schedule ZA1, which can be changed by the Government by order, without any primary legislation. I am sure that we will want to return to that.

Even more extraordinary is the Government’s justification for why they have included all these Henry VIII powers, which is

“the undesirability of taking up Parliament’s time unnecessarily.”

Surely it is the job of Parliament to decide whether its time is being taken up unnecessarily, not that of the Government. I draw the particular attention of the Committee to paragraph 8 of the Delegated Powers and Regulatory Reform Committee report, which states:

“In our view, the presumption should be that where something needs changing which Parliament has enacted, Parliament should enact the changes by primary legislation rather than ministers make the changes by secondary legislation.”


That points the way to a number of key amendments that need to be made on Report.

Turning to this group of amendments, it suffers from exactly the same problem that the noble Lord, Lord Hodgson, said the Bill suffers from, which is that it puts together a whole lot of separate things that do not actually go together. Over the past hour and a half, we have debated three completely separate matters: the issue of the independence of the monitor, which is hugely important—my noble friend Lord Stevenson’s amendments in that regard are utterly compelling—along with the issue of wider conflicts of interest in the whole handling of the moratorium arrangements and the people who play a part in them, which again is a wider and separate issue. The third issue, which has been covered comprehensively by my noble friends Lord Hendy and Lord Hain, is the hugely important matter of consultation with the workforce and the priority to be given to employees and workers in these moratorium arrangements and anything that might follow from them. I hope that in his reply, the Minister will be able to pay substantial attention to all three of these areas.

I do not want to go over ground that has already been covered by my noble friends, but I would like to ask the Minister one specific question. In the early stages of the coronavirus crisis, the Government made great virtue of the fact that they were consulting employee organisations, trade unions and the TUC in order to create a consensus on the kinds of measures which would be needed to deal with it. Indeed, in the construction of the furlough scheme, the Chancellor of the Exchequer made great play of the fact that he had been talking to the general secretary of the TUC, Frances O’Grady. It is quite clear that there are concerns among trade unions about the whole way that these provisions will cut across established insolvency provisions and redundancy provisions. Therefore, I want to ask the Minister a specific question—or rather, two related questions.

First, what representations have been made to the Government about the role of employees and their interests in this Bill? Secondly, can he tell us whether he personally or any of his ministerial colleagues have met the TUC general secretary or officials from the TUC to discuss these provisions? I ask that because if we are seeking to proceed by consensus, by the time we get to Report, we will want to know what actual discussions have taken place with representatives of employees and whether we can satisfy ourselves that there has been adequate consultation. If not, the arguments made by my noble friends Lord Hain and Lord Hendy are compelling when it comes to amendments that we will need to make on Report.

[Viscount Trenchard (Con)]

My Lords, as other noble Lords have mentioned, this Bill is an unusual combination of Covid-related measures that clearly need to be fast-tracked, along with measures to implement the long-held belief that we need an equivalent to the Chapter 11 procedures of the United States.

I do not think that a hybrid House is particularly well suited to scrutinising legislation, especially in Committee. I do not think we will be able to say that this is working well. We are making the best of a difficult situation but it only goes to show that in order to scrutinise the Government’s legislation properly, we need to get back to the proper House as soon as we can.

The only good point I might mention is that, for the first time since we went to Virtual Proceedings, in this Committee we have no time limits. It is so nice and such a relief that we do not have my noble friend the Minister turning round to scowl at us as soon as we have gone 10 seconds over the prescribed one minute or two minutes.

Amendment 1, in the name of the noble Lord, Lord Stevenson, seeks to narrow the definition of persons entitled to be appointed as monitors from “a qualified person” to qualified accountants. I would not support this narrow definition because it may be too restrictive, especially for small enterprises. A monitor should be someone with a professional qualification, issued by a body whose members are carrying on a relevant regulated activity.

I agree with Amendment 2, in the names of the noble Lord, Lord Stevenson, and my noble friend Lady Altmann. It is important that the monitor should be capable of independence and objectivity. The current IESBA—International Ethics Standards Board for Accountants—code of ethics definition of “independence” explains it as being made up of two elements: independence of mind and independence of appearance. The former is defined to include integrity, objectivity and scepticism. The latter is defined as being free from facts and circumstances that would lead

“a reasonable and informed third party”

to conclude that integrity, objectivity or scepticism was compromised.

I ask the noble Lord, or my noble friend, to confirm which definition of independence they would apply and whether it should be a strict, rules-based one, comprising a list of prohibitions of those related by blood, marriage, shareholding, et cetera, or a looser one, based on principles and objectivity. I hope that a sufficiently robust definition of independence could be included, so as to render unnecessary Amendment 42, in the names of my noble friends Lord Hodgson of Astley Abbotts and Lady Altmann, which seeks to ensure that a monitor should not be exposed to any possible conflicts of interest.

As precise amounts can be difficult to assess, I support Amendment 4, in the name of the noble and learned Lord, Lord Hope of Craighead, rather than Amendment 3, in the name of the noble Lord, Lord Mendelsohn. However, I agree that some kind of document showing the number of a company’s creditors would be useful to the court in making a decision on granting a moratorium. As explained by the noble and learned Lord, Lord Hope, that would assist the monitor in his or her duty to notify every creditor.

The noble Lord, Lord Stevenson, makes a case in Amendment 10 for the extension of the initial period in relation to a moratorium from 20 to 30 business days; this means six weeks, rather than four. I think that 20 days should be enough, even for small companies. Obviously, it will not be enough time for a complex restructuring, but that is not the purpose of a moratorium as introduced in this Bill.

I support Amendments 12, 13, 17, 18, 30 and 31, as proposed by my noble friend Lord Leigh of Hurley. Like my noble friend, I also have spent more than 30 years as an investment banker, much of it doing mergers and acquisition business. Like him, I know just a little bit about this. In the case of companies which have both viable businesses and non-viable businesses, it may be that to rescue one or more of a company’s businesses is sensible in cases where a rescue of a whole company may not be realistic. Does my noble friend not therefore agree that his amendments would be improved further if, after “company”, they sought to insert, “or the whole, or some part, of the company’s business”? I understand that this issue was much discussed at the time of the Enterprise Act 2002. There are of course very many companies which contain only one, or one substantive, business. But surely, in other cases, it is the rescue of a business, as opposed to the rescue of a company as a legal entity, that is important.

I also support Amendment 27 in the name of my noble friend Lady Altmann. Where an asset has been pledged to a company’s defined benefit pension scheme, it should not be within the powers of the court to release it for sale without the consent of the pension protection fund, as well as, surely, the trustees of the pension fund itself.