Corporate Insolvency and Governance Bill

Baroness Altmann Excerpts

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

[Lord Vaux of Harrowden (CB) [V]]

My Lords, I metaphorically rise to support Amendment 57 in the name of the noble Lord, Lord Hodgson of Astley Abbotts, and to speak to my very similar Amendment 61. Both relate to pre-packs.

The Minister said yesterday that pre-packs are

“a useful tool that allows businesses and jobs to be saved.”—[Official Report, 16/6/20; col. 2092.]

I do not think that anyone disagrees with that. Equally, few disagree that pre-pack deals with related parties involve clear conflicts of interest and raise serious transparency concerns—speaking of which, I can now see noble Lords, which is a great benefit. Indeed, at Second Reading the Minister directly recognised these concerns.

The 2014 Graham report, as mentioned by the noble Lord, Lord Hodgson, very clearly set out its findings that related party pre-packs often involve limited, if any, marketing and on average achieve worse outcomes for creditors. There is truth in the perception of creditors being dumped while directors sail on unharmed with their phoenix company.

The Pre Pack Pool was created in 2015 to introduce an element of independent review into connected party pre-packs. The hope was that this could be a voluntary process, but, sadly, this has not worked; only around 10% of pre-packs have been referred. I am afraid this confirms my slightly cynical view of how the insolvency industry works in practice. The Government had the power to fix this, as we have heard, under the Small Business, Enterprise and Employment Act 2015, but, as the noble Baroness, Lady Neville-Rolfe, pointed out, this expired two or three weeks ago.

I was initially tempted by her approach, as set out in Amendment 60—which, incidentally, should have been in this group—simply to reinstate the power to regulate. However, the Government did not use that power for five years, so I have limited confidence that they would do so in another year. Anyway, as we debated yesterday, this Bill already has more than enough powers to regulate.

The Minister said at Second Reading that:

“If strengthening of professional standards and the existing regulation do not deliver increased creditor confidence in connected pre-pack sales, the Government will look to bring forward further legislation.”—[Official Report, 9/6/20; col. 1728.]


That was very welcome, but fixing this issue is more urgent than that, given the current situation, and, frankly, it is already clear that professional standards and existing regulations are not working. Yesterday, the Minister praised the ethical and professional standards of the insolvency industry, saying that we should rely on those for independence and so on. That is touchingly naive—that might be the first time anyone has described the Minister in those terms.

Just last week, there were three high-profile pre-packs to related parties, which attracted a high degree of negative publicity. Only one was referred to the pool. Sadly, there are likely to be many more in coming months. Surely the Minister agrees that we should make sure these happen more transparently? As the noble Lord, Lord Hodgson, has pointed out, we may lose the Pre Pack Pool altogether if we do not take action. It wrote to the Minister to say that it is not sustainable under the current voluntary approach. The industry is also in favour; R3 has said that it would like to see action.

Making referral of connected pre-pack sales to the Pre Pack Pool mandatory in this Bill seems the obvious solution. It is very simple and could start working immediately; no new bodies need to be created and there are no material costs involved. Everything needed already exists. The Pre Pack Pool takes a very light-touch approach and can act quickly, so I strongly urge the Minister to include a clause to this effect in the Bill. It may not be enough in the longer term and we should continue to monitor pre-packs, but making referral mandatory would at least improve transparency with no material cost or complication. It would be very helpful if the Minister could give us his views on the usefulness of the Pre Pack Pool—whether he agrees it is unsustainable on a voluntary basis and whether he thinks it matters if it ceases to exist.

There is one subtle difference between my Amendment 61 and Amendment 57 in the name of the noble Lord, Lord Hodgson; mine says simply that a connected pre-pack deal cannot go ahead until it has been referred and the Pre Pack Pool has reported. The noble Lord’s amendment is more robust, saying that the report must also be positive. I would be happy with either approach. We need to improve transparency to prevent creditors being unfairly dumped, however we do it.

[Baroness Altmann (Con) [V]]

My Lords, I echo the words of previous speakers. I have added my name to Amendment 61 in the name of the noble Lord, Lord Vaux, but I also support the amendment of my noble friend Lord Hodgson of Astley Abbotts. As the noble Lord, Lord Vaux, has said, either approach would at least give a fighting chance of avoiding the sort of gaming of creditors that we have seen so often in the past. Indeed, when I was first involved in the pensions system in the early 2000s, the insolvency restructuring that pre-packs have sometimes engaged in was widespread as a means of dumping the defined benefit pension liabilities.

I fear that this Bill will pave the way for the same type of activity, to the detriment of the Pension Protection Fund and all employers sponsoring defined benefit pension schemes. Therefore, I urge my noble friend to take these amendments seriously; I plead that he look at the activities of the Pre Pack Pool and move to a mandatory approach, which, as has been so well described, would clearly better protect against the sorts of corporate activity that have so often brought capitalism into disrepute.

[Lord Adonis (Lab) [V]]

My Lords, I have two specific questions for the Minister. Is it the case, as reported in the Times on 26 May, that the Pre Pack Pool’s oversight committee has written to the Minister specifically, notifying him that it will be “unsustainable” unless referrals of pre-pack sales are made mandatory? Secondly, could he confirm that Teresa Graham, the accountant who led the review referred to by the noble Lord, Lord Hodgson, is now in favour of mandatory referrals? She is quoted in the Times as saying:

“To see the demise of the Pre Pack Pool would be utter folly.”


If that is the case, I cannot see how the Government can resist the amendment in the name of the noble Lord, Lord Hodgson, unless they believe that the pool and its whole policy is wrong. If the Minister is not as forthcoming as he expects, I hope the noble Lord, Lord Hodgson, will have the courage of his convictions and bring this back to the House on Report, because this looks otherwise like a classic case of willing the means but not the ends.