Corporate Insolvency and Governance Bill

Baroness Altmann Excerpts

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

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, in moving Amendment 1, I shall speak also to Amendments 2, 5, 6, 10 and 14, which are either in my name or in the name of my noble friend Lord Lennie. As I am afraid is true perhaps of all our proceedings this afternoon, this is quite a wide group. A lot of issues are raised, and I hope that we will have appropriate time to ensure that the points made are recorded and responded to by the Minister.

Amendment 1 concerns the question of whether the new post of monitor should have an appropriate set of regulations and, if so, what they should be. The amendment makes a rather narrow proposal for qualifications from a UK chartered accountancy body. As a member of the ACCA, I should of course declare an interest in this discussion. I would have expected there to be a broad interpretation of this issue, and this is just a probing amendment to try to get a response on the record. It raises the wider question of whether the persons likely to be involved in acting as monitors should be restricted to those with an accountancy background, because in many cases we are trying to develop a new approach to company rescue and relaunch in this country. It does of course happen in many ways, but the Bill perhaps provides a focus for a new mission on this. Of course, over the years, those who were involved in this have grown up from a number of different backgrounds, including lawyers and other professionals, as well as accountants, and we should be alert to that.

A wider question is raised. There is very little in the Bill about what the Government have in mind for those who will occupy this key role. Maybe the Minister can put a little more shade into the detail of this. Perhaps he could offer that notes might be published at some future date relating to the post of monitor, or regulatory provisions put into the Bill in relation to points that might be raised on later amendments. Those are all important considerations. We do not want to hold back the Bill because it is important that we get it in play but, if this initiative to provide breathing space and time for companies to rethink what they are doing is to work in practice, we will need people with real additional skills to those that are available more generally within the IP profession at the moment. We will need to encourage them to develop those skills, bring forward their version of what we find works, and build on those.

Amendment 1 is perhaps rather narrow in its application when seen in print, but there is a broader resonance behind it, and I hope the Minister will be able to respond to that in kind. Amendment 2, which I will speak briefly to, is a question about independence of the postholder of the position of monitor. It was raised on Second Reading and in the other place. We assume that there is no question but that those appointed to the post of monitor will be truly independent and able to exercise judgment in relation to the future of the companies with which they are involved. But again the Bill is silent on this, and perhaps I can again ask the Minister to speculate on how he might bridge the gap there in relation to guidance or regulation itself if required.

Amendment 5, in the name of my noble friend Lord Lennie, touches on an issue that will come up in a number of groups today: the role of the employees involved in companies which might be considering the use of the breathing space, the consideration of a reorganisational restructuring or, if it goes down that route, going into administration to preserve the assets held within a company for the creditors who are due to be repaid. In the latter case where we go into formal procedures, the law already is very solid on the role that must be played by employee representatives of particular trade unions, and particular aspects of consultation are brought into it. But the Bill is silent on what would happen in relation to these new initiatives about breathing space and the idea of trying to restructure in the time provided for it.

Could the Minister mention, when he comes to respond, whether he is minded to think further about these issues? It may not be necessary to do it on this Bill, but I think it would give comfort to those who have this amendment and other amendments to be discussed later this afternoon if he could say something at this stage about the Government’s overall position towards union employee representatives in relation to ongoing companies’ works. Any of us who have worked in business know that a tremendous role is played by employee representatives in the business of companies. Anybody who denies that is either unsighted or is just being provocative. In a good company, it is as natural as the air we breathe to consult and discuss issues of substance in relationships within the company with your employees. If you do not do that, you will suffer. It therefore makes no sense to arbitrarily dismiss that as a possible way forward in this legislation. I look forward to hearing the Government’s response on that. Only good can come from any movement in this area.

Amendment 6 concerns an issue that was also raised at Second Reading and is worthy of further consideration. The Bill correctly places a limit on the aspirations for recovery in relation to the monitor and their work by suggesting that they must have in mind the idea that a company rescue would be a possibility. However, this amendment asks: does that not make that a little tight; and would it not be better to use a different word, such as “could”? If it is only a requirement for the monitor to have regard to the fact that there could be a rescue, that seems to me—and to others, perhaps—a better way of opening up the possibilities for how and in what form a company might be rescued. If we are in the business of making sure that companies carry on and saving them, we should not kill them off too early. It would be wrong if the Bill, perhaps through infelicitous phrasing, gave too much away at this early stage of the process. “Could” would be a better word. I look forward to the Minister’s response.

Amendment 10 deals with the timescales for the legislation, as do many other amendments on our agenda that will come later. This amendment is narrow in relation to the timings required by companies to get themselves through the first early stage of consideration on whether a rescue is possible and, if so, how it might be managed. At the moment, 20 working days is provided although there is a possibility for extension. We pose the question, in a probing way, as to whether 30 days may be better. It would be good to get the Government’s response to that. Perhaps we can return to this issue later.

Amendment 14, which is the last one that I will speak to at this point, returns to the rather more complex issue of how long a company or, in practice perhaps, a monitor has to review the state of play in relation to the company, identify its creditor problems, talk to those who are involved in the whole process of the company—including employees, as will often happen —and think through the implications for pensions and other internal commitments. The timing is deliberately left open but when we raised this at Second Reading and the Minister read it out, it seemed that there was effectively no stop on the time limit that could be applied to companies seeking this form of redress in relation to the moratorium. If it is the case that the moratorium could be extended permanently and that that is meant here, perhaps how that happens in practice should be more explicit than simply having to work it out from what the Minister says. This issue was also raised in reports from the Delegated Powers Committee and the Constitution Committee, so we may well come back to it later. Again, it would be helpful if the Minister could clarify this when he responds.

There are a number of other amendments in this group, which we will need to debate. In particular, I want to focus on Amendments 83, 84 and 85 in the names of my noble friends Lord Hendy, Lord Hain and Lord Monks. They are in themselves important but they are also important for the long-term future of the way in which the Government, and indeed the country, deal with company organisation in relation to the points that I have already made, for example about the treatment of workers. I hope that we will have some good debate and discussion on these amendments for future work if we do not see them passed today.

I beg to move.

[Baroness Altmann (Con) [V]]

My Lords, I have added my name to a number of amendments in this group. If I may, I will leave it to those who formally move the amendments to expand on their thinking and I will give just an overview, in the interests of time.

I support the Bill’s aims. Clearly, it is vital to protect as many jobs and businesses as possible during the pandemic, as the noble Lord, Lord Leigh, rightly says, but due to the speed with which the Bill was introduced, some of the novel ways in which individuals are introduced into the potential insolvency process or the corporate rescue process may need further strengthening. Indeed, further checks and limitations to reduce the risk of the moratorium being abused and more explicit duties on the monitor to ensure their independence are needed. The Bill does not impose any statutory requirement for the monitor to be independent of the company directors, who appoint the monitor.

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[Lord Balfe [V]]

I will be brief. One good thing is that there is no time limit today so people have tended to speak on a bit, shall we say?

First, I endorse everything that was said by the noble Baronesses, Lady Drake and Lady Warwick. I hope that there might be an opportunity for a meeting before the final publication. My only point in addition to that is that we seem to imagine that the PPF is safe for ever. I have always—or at least over the past year or so—said that, one day, this lifeboat is going to sink unless someone puts some effort into making it float and keeping it alive. I suppose that BEIS and the DWP are separate departments but we run the danger of ignoring pension schemes to a point where the levy will become unsustainable and the whole edifice will come crashing down on us. I ask the Minister to look carefully at this.

In closing, I repeat the point that I have made ad nauseam: pensions are deferred earnings of the workers in the company, often stretching back over many years, and they deserve priority. That remains my fundamental position.

[Baroness Altmann [V]]

My Lords, I will speak to Amendment 27, which is in my name. I support whole- heartedly Amendments 20, 39, 63 and 64, as well as Amendment 118, to which I added my name.

I echo the wise words of the noble Baronesses, Lady Drake and Lady Warwick, and my noble friend Lord Balfe. It is of deep concern that the Bill did not originally encompass provisions to protect the deferred pay of workers in an insolvency or restructuring situation. Indeed, as it stands, the Bill drives a coach and horses through the protections that, as the noble Baroness, Lady Drake, so rightly outlined, were carefully crafted and put in place in 2004 to ensure that workers’ pensions were protected, having been through several years during which it was discovered that many members of defined benefit pension schemes had lost much, or even all, of the pension that they had been relying on for their retirement.

The Bill is a significant change to the usual priority order for unsecured creditors in an insolvency or a restructuring situation. It is an existential threat to defined benefit pension schemes in the UK to give super-priority status to unsecured financial debt over that of other unsecured creditors—including the associated pension scheme and the rights of the Pension Protection Fund, which protects all other defined benefit pension schemes in the UK. I urge my noble friend—I thank him for at least recognising that this is an issue and saying that the Government will table amendments—to listen carefully to the concerns expressed in the debate on this group of amendments and ensure that consultation is put in place, as other noble Lords have requested, so that we can try to get this right.

The pension promises are so important for workers but, as it stands, this legislation would appear to legitimise the actions in connection with pensions that have been considered egregious over the years. The Pensions Regulator’s reports on the pension schemes of BHS or Carillion, for example, make it clear that the pension funds were at risk of being gamed by other financial creditors passing the parcel or elevating themselves ahead of the interests of the pension schemes.

Amendment 27, for example, would ensure that if an insolvency was in the offing and the monitor applied to the court to remove protection from assets that were previously secured, such consent could not be given without the approval of the Pension Protection Fund. That is really important. With the provisions proposed in, for example, Amendments 63 and 64, the PPF would already have been involved because a PPF assessment would have been triggered. After a PPF assessment period is triggered, the PPF can come in and protect its own position and that of the pension fund; that is, the creditor rights.

At the moment we have a system whereby trustees carefully work out integrated risk management proposals to ensure that the contributions to the pension scheme demanded of employers are reasonable and proportionate in terms of helping the company to survive and thrive, but also protecting the scheme should the company not do so. In that regard, many schemes have been pledged assets belonging to the company so that, if insolvency occurs, they will be available to boost the pension scheme. Under the current proposals in the Bill, without Amendment 27 the assets pledged to the scheme would potentially disappear and the banks would potentially secure themselves a win-win situation while jeopardising the interests not only of the pension scheme attached to the company in question but of all other defined benefit schemes protected by the Pension Protection Fund and the millions of members in those schemes. I hope that my noble friend will listen carefully and take seriously the concerns expressed across the Committee that banks should not be given preferential status.

I would also like to pick up on what my noble friend the Minister said in the debate on the first group of amendments: that the intention behind the moratorium is not to make creditor positions worse. However, in the context of a defined benefit pension scheme, should the Bill’s measures not be amended in line with the types of amendments proposed here, there will be a fundamental change if an insolvency winding-up or administration takes place within 12 weeks of the moratorium, and the moratorium and pre-moratorium debts take priority over creditors such as those with Section 75 unsecured pension debt.

I welcome my noble friend the Minister’s comment that the Government plan to bring forward their own proposals to address some of the concerns covered by my Amendments 94 and 95, and I thank the Law Society very much for its help and support in addressing these inconsistencies or insufficiencies in the Bill. I hope that my noble friend will bring forward amendments to ensure that pension schemes are protected, that contribution notices and financial support directions are not overridden, and that the pensions of scheme members across the country—pensions on which they rely for their retirement security—are not significantly jeopardised by this well-intentioned and important Bill.

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[The Deputy Chairman of Committees]

The noble Lord, Lord Adonis, does not seem to be in his place in the Chamber, so we will go to the noble Baroness, Lady Altmann.

[Baroness Altmann [V]]

My Lords, I will be brief. I support the amendments in this group. Amendment 23 from the noble Baroness, Lady Bowles, and the noble Lord, Lord Fox—which the noble Baroness, Lady Bowles, explained very well—helps to explain the importance of increasing the protection for unsecured creditors being pushed further down the list of priority by the measures in this Bill. Following on from some of the remarks by the noble Baroness, Lady Bowles, I suggest to my noble friend the Minister that the Government could even consider offering super-priority for less than a Section 75 debt but still recognise the debts owed to the pension scheme, if it has a deficit. That could be in the form of Section 179 debt, which would at least cover the PPF level of benefit, or even for technical provisions, so that at least that has some extra security, especially in light of the current level of annuity rates following extensive quantitative easing and the extra cost of Section 75 debt.

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[Baroness Anelay of St Johns [V]]

My Lords, I will speak to Amendment 143, which is in my name. The Bill is of course welcome and gives legal certainty to certain charities about how they can, without any penalty, “disobey” the rules in their own governing document on whether and when to hold AGMs and other meetings and file certain documents. But some charities are excluded from this sensible legal assistance—those established either by Act of Parliament or by Royal Charter. They are mostly long-established and include national museums and leading cultural organisations such as the Royal College of Music and the National Art Collection Fund, as well as some leading universities and colleges. It should also be noted that, even if a charity does not have to hold an AGM during the relevant period, it may none the less be advisable for it to take advantage of the temporary flexibility offered by the Bill to other charities and go ahead with a meeting to consider resolutions which might need to be passed in the next few months—for example, the appointment or re-appointment of board members.

My objective today is to ask the Government to explain why they have excluded certain categories of charities from the flexibilities provided by this Bill. If the Government have decided that the Bill is not the right vehicle for these charities, I would like my noble friend the Minister to explain why. It is important that the Government explain today what other guarantee of certainty they can give to the excluded charities, so that they will not face any disadvantage.

Much earlier this afternoon, in answer to the noble Baroness, Lady Falkner, my noble friend Lord Callanan stated that there had been extensive consultation over a long period about provisions in the Bill. I would be grateful if the Minister said now what discussions she or her officials have had with DCMS and the Charity Commission in deciding what assistance should or should not be provided by legislation to the excluded charities. Did those discussions take place before the pandemic began, or have they taken into account discussions since then with representatives of the excluded charities about the impact of the pandemic on them and how they might be given certainty?

My concern is that there is a group of excepted—excluded—charities which do not have the same benefits as others listed in Schedule 14. I feel that it is unfair to leave them to the vagaries of decisions by the Charity Commission as to whether they can go ahead and break the rules of their own governing document. They are respectable charities; they need to have the respect of being given the flexibility to operate in the same way during this pandemic as charities currently covered by the Bill. I look forward to the Minister’s response.

[Baroness Altmann [V]]

My Lords, I too will be brief in the interests of time. I echo the wise words of the noble Baroness, Lady Anelay, and I support her Amendment 143, but I particularly want to talk to my own Amendment 144. This amendment deals with an issue whereby the Bill has rightly removed barriers for those companies whose articles do not allow virtual AGMs to be held. It is clearly important to enable such meetings in the current environment, but Schedule 14 has some worrying implications for shareholder capitalism. I ask my noble friend the Minister to consider Amendment 144, and I thank the noble Baroness, Lady Bowles, for her support. The amendment would make a small change in respect of paragraph (b) of Schedule 14 (3)(6), which removes the right of shareholders to ask questions at AGMs and permits them only to vote.

That paragraph would clearly reduce shareholders’ ability to scrutinise, engage with and hold to account a company's management. As ShareAction has pointed out, it would also damage the UK’s reputation for protecting shareholder rights and the interests of both institutional and individual shareholders. My amendment would simply omit paragraph (b), so that ways can be found to allow shareholders to engage in dialogue and question their boards, as is already the case for US and European companies. I would also hope that, after these emergency measures expire, my noble friend might agree that there is a need to develop ways to modernise British AGMs to better reflect the era of modern stakeholder capitalism.

[The Deputy Chairman of Committees]

I now call the noble Earl, Lord Clancarty. No? I call the noble Lord, Lord Cormack.

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[Lord Hendy [V]]

Thank you. Amendments 107 to 116 seek to add a third condition to the two proposed conditions for the court to approve a compromise or arrangement.

In Amendments 109 to 111, we seek to require that companies pay all outstanding payments of workers’ remuneration et cetera. This is a reflection of the amendments moved in group one, and therefore I will not develop the arguments again.

Amendment 112 would ensure that the company’s obligations to its pension scheme have absolute priority. Again, your Lordships heard the arguments for that in the debate on the first group of amendments, with contributions from my noble friends Lady Drake and Lady Warwick, the noble Baronesses, Lady Bowles and Lady Altmann, and the noble Lord, Lord Balfe.

Amendment 113 is a repetition of the condition that we proposed in the debate on the fourth group of amendments, which is that 30% of the sale of any assets should be used for the satisfaction of unsecured creditors. I will not repeat those arguments.

Amendments 114 and 115 are, in our submission, important. They are intended to redress the striking deficiency in the Bill of failing to include any mechanism of industrial democracy by which workers may have a say in the vital decisions contained in the Bill that are likely to have a profound effect on their lives.

Amendment 114 proposes workers on boards, just as in most of the rest of Europe. Such a proposal has been the subject of discussion since the 19th century and particularly since the 1977 Bullock report. It was proposed by Mrs May when she was Prime Minister. This is a golden opportunity to put it into effect as a condition. Workers being on boards would make the interests of all stakeholders being properly taken into account much more likely.

Amendment 115 proposes an alternative form of industrial democracy: collective bargaining. Our amendment recognises that there are no recognised unions in many workplaces. We therefore deploy the mechanism for workplace representatives to be elected, which is found in the legislation for collective redundancy consultation. The statutory requirement to bargain collectively has a long history, going back to the Trade Boards Act 1909 and, in a different and more limited form, Schedule A1 to the 1992 trade union Act. It is normal in Europe. The Government would also have the satisfaction of complying with their obligations in international law.

Amendment 116 is intended to discourage restructures intended to raise cash simply to pay dividends, buy back shares or pay the directors excessively.

Amendment 117 is intended to extend the benefits of the previous measures to the broader legal category of workers as well as that of employees.

I am disappointed that, because of the time, I cannot develop further any of the merits of these amendments at this point.

[Baroness Altmann [V]]

My Lords, I will not detain the Committee for very long. I add my support for the protection of workers’ rights that would be achieved by the amendments in this group.

[Lord Hain [V]]

Current UK company law prioritises the interests of company shareholders over those of anyone else with an interest in the company, such as employees, suppliers and subcontractors or local communities, but everyone involved in a firm in financial distress has something at stake, not just those in the boardroom or whose names appear on the company’s share register. This includes each and every member of the workforce. Whatever happens, they deserve to have their tax, national insurance, redundancy and pension rights and responsibilities acknowledged and protected.

Amendment 112 recognises that pensions are really postponed pay packets and seeks to protect workers’ deferred earnings. Workers who may have invested much of their working lives in the company and thereby have accumulated pension rights vital to the future of their family must not face losing some or all of those rights while shareholders and secured or unsecured creditors help themselves to whatever of value remains in a company that is facing failure.

Amendment 115 requires collective agreements to be reached between firms seeking a compromise or a reconstruction arrangement and representatives of employees affected by such a compromise or arrangement.

Amendment 116 makes it a condition for companies to receive state support under the Bill that they give priority to rebuilding their finances, ruling out for three years dividend payments, share buybacks or payments to any director of more than 10 times the rate received by the company’s lowest-paid full-time equivalent employees.

Amendment 111 provides for any compromise or reconstruction arrangement for a firm in financial difficulty to provide immediate redress for past breaches of the sex equality clause under Section 66 of the Equality Act 2010 or of the sex equality rule under Section 67, and for the possibility of future such breaches to be eliminated.

Amendments 114 and 115 on elected workers on boards and requiring agreements with trade unions seek to take a leaf out of Germany’s book by giving a voice to workers via elected seats on company boards. In Germany, about 90% of private sector workplaces with more than 500 employees elected works councils in 2011. This system of making co-operation at work between unions and employers a matter of routine has helped to deliver high living standards, unparalleled export success, strong manufacturing, world-class training and skills, and social cohesion.

So that we can decide what to do on Report about these issues, I appeal to the Minister to give strong and unequivocal guarantees on the issues we have raised in Amendments 107 to 117.

Finally, my Amendments 120, 121 and 122 on restructuring propose lowering these thresholds from the proposed three-quarters to two-thirds to make it quicker and easier for distressed companies to apply to the court for the approval of their restructuring plans. This would provide greater certainty for all stakeholders in those businesses, including employees. It would reduce the cost to businesses of restructuring negotiations, helping return more value to stakeholders, and would lead to quicker resolutions of corporate restructurings, helping to protect jobs. While the interests of minority creditors and shareholders are important, it cannot be right that their interests can prevail over those of a majority, exposing all to greater likelihood of the business subsequently falling into administration or liquidation.

I therefore hope that the Minister will accept these amendments, or, if he has technical or drafting quibbles, at least come back on Report to amend the Bill as I intend with these amendments.