Corporate Insolvency and Governance Bill

Baroness Bowles of Berkhamsted Excerpts

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

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I draw attention to my financial interests, as in the register. Although we broadly support the Bill, it is a little frustrating. It does too much by permitting things in a fast-tracked temporary measures Bill, and too little because it has left out other important measures similarly well consulted on. The Minister may conclude that that balance is like Baby Bear’s porridge and just about right. Nevertheless, there are some lumps in the porridge. Expediency has meant that it is the business-favouring parts of the consultations that are being fast-tracked and the more social-facing, small business and employee-facing measures that are left out. I therefore ask the Minister for reassurance that the Bill is not seen as removing pressure from legislating other important reforms on corporate governance and reporting, ESG, insolvency practitioners, audit and replacement of the Financial Reporting Council. I certainly do not see it as a justification for holding off.

The moratorium provision was expected, but there may be traps in the way it works, especially in the event of a following insolvency. There are changes in the insolvency distribution waterfall, with unpaid moratorium debts, and pre-moratorium debts without a payment holiday, being given a new super-priority. Both the treatment of what becomes super-priority and what is “normal supply” disadvantage smaller suppliers. All their pre-moratorium debt is in the subordinated category and normal supply favours stronger creditors’ amounts of super-priority, as they will have contracted shorter payment terms. Will events be monitored, and rankings readjusted if the super-priority does result in outcomes with less in the pot for SMEs, unsecured creditors and pension fund deficits? Unfortunately, it also looks as though the slaying hand will be held by HMRC, with its new claims for extra super-priority, and by banks, as they are outside the ipso facto provisions. It may be that security is not exercised in moratorium, but where are the provisions that prevent banks charging special fees and hiking interest so they can profit in moratorium, or making repayment acceleration demands to secure larger sums with super-priority? Such actions will not help rescue companies, are unfair and should be restrained. That is not to say that the moratorium concept is unwelcome but, because we do not have the time now to weigh up all the checks and balances, it would be sensible to hold its operation under review, to see how it worked and for revisions in the light of unintended consequences to be brought forward.

The temporary suspension of winding-up petitions also has lumps. In a sense, it robs Peter to pay Paul and whether it is the potential petitioner or the company that is smaller, more at risk or more aggressive, is not always one way. I therefore recognise the compromise in trying to keep the period short. However, under Schedule 10, the courts could impose retrospective restoration costs on those required to withdraw petitions made under the current law. Unlimited, might that be a retrospective step too far?

I am conscious that fast-tracked emergency legislation is not appropriate for complex changes and additions, but a few simple things within the scope of the Bill could be achieved. My noble friends will say more.

I regret that there are not more provisions to assist with personal bankruptcy. Australia has raised both the payment time and the financial threshold for initiation of proceedings.

[Baroness Bloomfield of Hinton Waldrist (Con)]

I remind the noble Baroness of the time limit.

[Baroness Bowles of Berkhamsted [V]]

What is happening in the UK? Additionally, I regret that the Bill does not include simple Companies House provisions on identity verification, enabling it to play a role in preventing rogue or criminal elements abusing the current crisis to commit fraud. Again, there has been consultation already, but how is that being followed up?

[Baroness Bloomfield of Hinton Waldrist]

I ask the noble Baroness to bring her comments to a close.

[Baroness Bowles of Berkhamsted [V]]

I intend to revert to the various matters I have mentioned with amendments.