Premier Motor Auctions

Debate between Austin Mitchell and Jo Swinson

Tuesday 17th March 2015 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

It is a great pleasure to serve under your chairmanship, Ms Dorries. I congratulate the hon. Member for Great Grimsby (Austin Mitchell) on securing the debate. I recall, as he mentioned, that we debated this subject in November 2013. The fact that he has returned to it for discussion today is testament to his tenacity and willingness to pursue the matter raised by his constituent, Mr Elliott, who he feels passionately has suffered a real injustice.

In our discussion almost 18 months ago, I set out that I shared and had some sympathy with many of the concerns raised. A wide range of people have expressed concerns about some aspects of insolvency regulation, which is why we have taken steps to make changes. I set out, which remains the case today, that I did not have powers to intervene in this case. Of course, the changes we are making will not be retrospective, but I hope to be able to set out the package of reforms that we have been able and continue to bring forward to strengthen the insolvency regime, which together are a bold step forward. I hope that the hon. Gentleman will be reassured by that.

I appreciate that that does not help in this specific case, which is covered by the systems that applied at the time. I know that the conflict of interest issues have been considered by the court, who dismissed that application. The ICAEW reviewed the complaint and concluded that there were no such issues. The Insolvency Service then considered the ICAEW’s handling of the complaint and did not find fault, so in terms of the different routes available in this specific circumstance, it was hard to see how the redress the hon. Gentleman ultimately seeks would be possible. However, in terms of the wider regime going forward, we are determined to improve the situation for companies that might find themselves in similar situations.

I appreciate that that will be frustrating, not least for the hon. Gentleman’s constituent, but he has been able to set out his concerns about the case and the behaviour of the different organisations involved in handling it powerfully. If I may give my view, which is perhaps different from that given by those organisations, I think it is absolutely the place of parliamentarians to represent their constituents’ views, raise issues of concern and put those firmly on the record in Parliament when they believe that an injustice has been done. I do not think it is for other organisations, frankly, to tell MPs whether this is an issue that they should or should not pursue on their constituents’ behalf.

On that note, although we are from different parties, I would like to recognise that the hon. Gentleman has a reputation for being a great defender of his constituents, with ever-forthright comments about whatever issue of the day he is concerned about. Although this may not be his last contribution in this House—I hope it is not—it may well be one of the last, and Parliament will certainly be losing a character when he steps down from his constituency in a short while.

I will turn to what we are specifically doing to strengthen insolvency regulation shortly, but first, let me say that we have an open mind on whether to take further steps. The ethics code requires administrators to satisfy themselves that the board is happy with the appointment and to consider any threats to their independence. We are reviewing that in conjunction with the regulators and seeing whether it is sufficiently robust, so that is one area in which there could be further movement, depending on the outcome.

[Austin Mitchell]

Will the Minister tell us what is happening about the Tomlinson report, which is a review of a series of very similar cases to this one, but concerning RBS? That demands action, too.

[Jo Swinson]

Great minds think alike, because that was going to be my very next point. In 2014, the Financial Conduct Authority announced that it had appointed firms to conduct an independent skilled persons report to examine RBS’s treatment of business customers in financial difficulty and consider the allegations that were set out in the report by Lawrence Tomlinson, which were about poor practice that he had evidence of. Once the FCA skilled persons report has been published, which we expect to happen this summer, we will carefully consider whether any issues need to be taken into account in terms of insolvency legislation—including the regulation of insolvency practitioners—that have not been addressed by the reforms in progress. It may be that those issues are already addressed by our package of reforms, but if further issues are raised, we will keep an open mind about taking further steps.

I turn to measures that we are already taking on strengthening insolvency practitioner regulation. The Small Business, Enterprise and Employment Bill, which is currently before the House, contains measures to strengthen the regulatory regime for insolvency practitioners. The introduction of regulatory objectives will make sure that insolvency regulators have a framework within which to carry out their activities. That is intended to make sure that a consistent approach is applied and to give a reference point for discussions between regulators, insolvency practitioners and the Insolvency Service. The objectives set out in the Bill will ensure that the regulators have a system of regulating insolvency practitioners that gives fair treatment and consistent outcomes for people affected by their acts or omissions.

Regulators will have to encourage an independent and competitive insolvency profession, whose members deliver high-quality services at a fair and reasonable cost, with transparency and integrity. They must seek to maximise returns to creditors and be prompt in making those returns, and the public interest must be protected and promoted during the insolvency process.

Another measure could have been relevant in this case, had the provisions been in place at the time; I am referring to the power to allow the Secretary of State to apply to the court for a direct sanctions order against an insolvency practitioner, when that is in the public interest. The sanctions could be a range of measures, including revoking authorisation and a financial contribution to creditors. I said when we previously discussed this issue that there was literally no power for Ministers to intervene, but the new regulation addresses that. We anticipate that, because this is a strong power, it would be used sparingly. It would need to be used when there was clear public interest and evidence of serious breaches of law or standards by insolvency practitioners, and when swift action was necessary. None the less, that gap, where previously there was no power, is being filled and there will be a power. Combined with other measures in the Bill, that should hopefully address the perception that the current disciplinary procedures for insolvency practitioners are not always effective in delivering fair and prompt outcomes for those affected.

The sanction powers and the regulatory objectives will hopefully make sure that we have a clear, transparent system that can hold people who do not deliver to account. Those changes, along with work that the Insolvency Service is doing with both the profession and the regulators to enhance the regime, should improve trust and confidence without the need for further intervention. However, if that set of measures is not sufficient and there is still a lack of trust and confidence in the system, we have the back-stop power in the Bill to establish a single insolvency regulator. That is if we do not see the anticipated improvement and confidence in the regime.

Many people express surprise that there are eight different regulators that authorise insolvency practitioners. I confess that before becoming the Minister responsible for insolvency, I was not aware of that. I had heard of some of the bodies, but was not fully aware of the degree of complexity. I well understand the view that that diversity does not necessarily help matters. I can see the potential benefits, including choice, but that fragmented regulatory landscape can lead to problems of inconsistency and complexity.

We were working, even before introducing the powers in the Bill, to deliver more consistency. A common sanctions framework has been agreed and a single gateway for complaints set up. That should ensure that, whichever body regulates a particular practitioner, the complaints process and the outcomes will be consistent across the profession.

I will turn briefly to the improvements made in relation to pre-packs, which have been a concern of many hon. Members. The Government commissioned Teresa Graham to conduct an independent review in 2013, and her recommendations were published in June 2014. The report concluded that pre-packs were an important and valuable part of the insolvency landscape— indeed, I think it was intended and hoped that a pre-pack would be the solution in this case, even though there was not a successful outcome—but that there was a lack of transparency and confidence, particularly where a sale was to a connected party.

The review recommended a voluntary package of reforms, which my officials have been working with stakeholders to implement. The reforms include setting up a pool of experienced business people to scrutinise a planned pre-pack sale to a connected party and a strengthened professional standard for pre-packs, which will require more information on the valuation and marketing of businesses to be provided to creditors. We are working to put that in place. The review also recommended that we should take a back-stop power for use if the voluntary reforms were not successful, and we have done that in the Bill. Those reforms are in place, and we hope that they will be successful, but if not, we have additional powers in the Bill. Sometimes additional powers can also act as an incentive for all those involved to ensure that the voluntary regime delivers the outcomes needed.

There has been significant concern about the fees that insolvency practitioners charge. Earlier this month, I announced new legislation affecting how IPs charge fees. In the future, they will be required to give clear information on their fees and expenses before asking creditors to approve them. Where fees are based on time costs, creditors will need to agree an estimate of the likely fees. If the insolvency practitioner’s fee then exceeds the approved limit, they will need to seek further approval before being able to draw any additional amounts. Basically, the estimate acts as a cap on fees. Those measures deal with the concerns that many creditors had about a blank cheque in effect being written for the administrators, and have been welcomed by the profession and creditor bodies.

I have mentioned some of the other things that are already being taken forward, such as the review of the ethics code and the new complaints gateway, which will bring some consistency to the issue. People are becoming more aware of the complaints gateway. Last year, nearly 1,000 complaints were dealt with via that single complaints gateway. That is a sign that there is a degree of success from the changes that we are making.

I hope that the hon. Member for Great Grimsby will recognise that the Government have listened and continue to listen to the comments that he and others make about the problems in parts of the insolvency regime, which generally is very highly regarded. We need to remember that we have one of the best regimes in the world. Our insolvency profession is highly skilled and undertakes difficult work in challenging circumstances, saving many businesses and thousands of jobs each year. However, we must always strive to improve it. That is why we are undertaking these reforms. They will mean that in the coming months we will have an improved insolvency regime, including a better regulatory regime that will inspire greater confidence that insolvency practitioners and their regulators are working in a way that strikes the right balance between parties affected by insolvency. I hope that cases such as the one—

Premier Motor Auctions

Debate between Austin Mitchell and Jo Swinson

Tuesday 12th November 2013 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

First, I congratulate the hon. Member for Great Grimsby (Austin Mitchell) on securing the debate. He has been a tenacious advocate on behalf of his constituent, Mr Elliott, and his concerns about the administration of the companies of which he was the managing director. I applaud the hon. Gentleman’s work on behalf of constituents generally, which we all wish to undertake as MPs in our own constituencies.

I hope to be able to address some of the points that the hon. Gentleman has raised on this specific case, although he will appreciate that there are limits to what I can say—and, indeed, do—on this case. However, he has also raised his concern that these issues exist more widely, so I will also touch on what the Government intend to do to address issues in the insolvency market more widely.

[Mr Philip Hollobone in the Chair]

The concerns that the hon. Gentleman has outlined regarding this case include the alleged conflict of interest involving the administrator, the accountancy firm PwC and the bankers, Lloyds. Mr Elliott has made it clear that he considers that the close relationship between PwC and the bank enabled his companies to be sold in an inappropriate and irregular way. The hon. Gentleman described that as, in effect, the theft of the company. I appreciate that his constituent feels very strongly about this issue, not least because this was his livelihood and his company. We all understand that.

The hon. Gentleman also outlined his concerns about the wider context of the banks acting with the big four accountancy firms to sell businesses at a profit for themselves, to the detriment of creditors and those who had been running the companies. I recognise that people are worried about the independence of insolvency practitioners and I will come to those matters, but I should perhaps try to manage expectations. I may be unable to satisfy the hon. Gentleman on the specifics of this case, because I do not have the power to intervene in individual insolvencies. The issue is not whether I am willing to do so; it is simply that I am not able to do so.

The hon. Gentleman will inevitably be more familiar with the intricate details of the case than I am, but my understanding is that Irving Warnett was introduced, he says, as a non-executive director and a critical friend of Premier Motor Auctions. My understanding is also that, whatever discussions took place, he was never actually appointed as a non-executive director, so the legislation on directors’ responsibilities does not specifically apply to him. The issues about a conflict of interest have been investigated, and I will come to the way in which that complaint was handled.

The hon. Gentleman also highlighted the two different deals that seemed to be on the table in December 2008. One was much more appealing to Mr Elliott. The other, which ultimately was the one undertaken, was clearly not as acceptable to Mr Elliott. I understand the hon. Gentleman’s concern about where that decision was made, but I do not have the power to secure that information.

That said, I strongly encourage any company receiving correspondence from a Member of Parliament about a constituency case to engage with that Member of Parliament and answer their questions. After all, we elect 650 MPs to represent everybody up and down the country, and the office of Member of Parliament should not be disrespected by any individual company. It would be helpful if the relevant companies found it in themselves to engage a little more constructively and answer some of the questions that the hon. Gentleman understandably put to them on behalf of his constituent.

The hon. Gentleman highlighted a couple of deals, which go by the interesting names of Project Tic and Project Toc. In August 2008, Lloyds were apparently insisting that the company went into administration, which he referred to as Project Tic. Project Toc involved Endless LLP and Lloyds buying the company out of administration through a specially created new company. It is difficult to comment on those specifics, because the sale did not take place under either of those projects.

Mr Elliott complained to the ICAEW, which is the insolvency regulator of the administrator, Mr Green. As the hon. Gentleman knows, it investigated the complaint, which involved the potential conflict of interest around Mr Green becoming administrator when previously, it is alleged, there was a material relationship between PWC and the companies involved.

The ICAEW investigation concluded that no conflict of interest arose, on the basis that PwC was acting as investigating accountants for the bank prior to the administration, and therefore it was not contrary to the code of ethics with which all insolvency practitioners must comply. The ICAEW also looked at PwC’s negotiating to sell the business in the days before Mr Green was appointed and stated that that likewise did not breach the code because PwC was trying to maximise asset realisations, which was compatible with Mr Green’s duties as administrator.

Every insolvency practitioner should be aware of potential conflicts of interest. There was an investigation in this case, because there clearly should have been awareness of that, but if an insolvency practitioner works for a particular firm, a conflict of interest is not automatically inevitable. The investigation found that there was no conflict of interest in this circumstance.

[Austin Mitchell]

In fact, as the Minister pointed out earlier, Mr Warnett was not appointed as a director, but the letter from Lloyds specifically said that he was to be a non-executive director. On that basis, he was received by the company and gave advice to create the £2 million hole in the accounts.

The ICAEW investigation was only a partial investigation of part of the complaint. The complaint, which put three headings together, had to be treated as a whole to show the conspiracy, but the ICAEW said that it could not be treated in that fashion and that it would investigate only part of it. That investigation was certainly far from thorough, because it has left open the question whether PwC could act for both the company and the purchaser in the administration.

[Jo Swinson]

As the hon. Gentleman is aware, Mr Elliott was unhappy with the investigation and therefore also asked the Insolvency Service to use its oversight role to review whether the ICAEW had dealt with the case properly in its investigation of the complaint. The Insolvency Service concluded that the ICAEW had adhered to its complaints processes and that the finding of the investigation committee was not unreasonable.

I have not seen the letter of engagement from August 2008 on the appointment of a director, but whatever is in that letter, if somebody is to be appointed as a director, a formal process must be undergone through Companies House. That did not happen, so there was no status as non-executive director, even if it was supposed to happen. The investigation took place and was looked at by the Insolvency Service, and that is where the powers we have get us to in this circumstance.

I am absolutely sympathetic. I understand the concerns of Mr Elliott and the hon. Gentleman. It is important that those who deal with the insolvency of a company are seen as independent, and I understand why on this occasion there is not necessarily confidence that that was the case. I stress to all insolvency practitioners that they need to look long and hard at their position when they take on the administration of a company, to see whether there is any potential conflict. They should take appointments only where they feel that they are able to act with independence.

The hon. Gentleman placed the issues raised by the case in the wider context. It is helpful to look more generally at what we are doing for companies that find themselves in a similar situation. The Insolvency Service is taking an increased interest in conflicts of interest. It is focusing its oversight regulation work on the specific issue of insolvency practitioner independence. When it goes out to monitor insolvency regulators, it looks at how those regulators consider alleged conflict of interest cases and whether the current code of ethics is robust enough.

For example, the Secretary of State recently wound up a number of introducer firms that had inappropriate relationships with insolvency practitioners. Creditors and complainants continue to express concerns about the effectiveness of the regulatory regime for insolvency practitioners. Stronger oversight powers would help to improve confidence in the regime. We will therefore bring forward proposals, when we can find time within the legislative programme, to strengthen the powers of the Secretary of State as the oversight regulator.

The case brings to mind issues more generally. Many hon. Members have expressed significant concerns about the pre-pack process. In July, I announced that Teresa Graham would be appointed to undertake an independent review of the pre-pack procedure. The review is under way and is considering, among other things, whether pre-packs provide value for creditors and how confidence in the procedure can be improved. We have passed on the concerns that Mr Elliott raised to the review team, as part of its evidence-gathering process, so that it can look at a variety of different cases where people have been worried about what has happened. The review is expected to conclude by spring next year—in just a few months’ time.

The Insolvency Service has also worked with the regulators to develop a revised standard for pre-packs, known as SIP16—statement of insolvency practice 16. It requires insolvency practitioners to provide earlier and more detailed information to creditors about valuations, marketing and the justification for a pre-pack.

Importantly, where there is evidence of abuse by an insolvency practitioner, creditors can now use a new single complaints gateway. It is a single point of access for complainants and therefore much easier to use, given the fragmented regulatory regime with different regulators. It will also make it easier for the Insolvency Service to oversee the progress of complaints. Common sanctions guidelines have been introduced by the majority of insolvency regulators, to create more consistency in disciplinary standards.

In conclusion, I shall turn to the role of banks. Banks will undertake reviews to assess the viability of a company for continued or enhanced financial support. As a fundamental feature of our financial and insolvency law, lenders that have valid security must be able to appoint an agent, such as an investigating accountant, to protect the value of that security. Banks also need to act responsibly and consider the implications of any decision they ultimately take.

The Government recognise the problems that there have been in the banking sector, which have done a considerable amount to undermine people’s faith in the banking system. We recently responded to the report from the Parliamentary Commission on Banking Standards, which marks the next step in the Government’s plan to improve confidence and build a banking sector that upholds high standards of ethics and professionalism. We will continue to strengthen standards in banking, by working with the regulators to strengthen corporate governance and ensure that firms have good systems in place to maintain standards on ethics and culture. Such issues are important.

I appreciate that what I have outlined on insolvency and banking will not necessarily help in the specific case brought to us today, but I hope that it provides reassurance that we are aware of the important general issues and are taking action.