Corporate Insolvency and Governance Bill

Baroness Burt of Solihull Excerpts

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

[Baroness Burt of Solihull (LD) [V]]

My Lords, like my colleagues, I give an overall welcome to this legislation. I understand that the urgency of helping businesses during the pandemic and its aftermath necessitated bringing it forward now, but can the Minister assure us that the missing bits, particularly on corporate governance, will be brought forward in a timely manner? In the time available I shall pick up a couple of issues of particular concern to small businesses, and I would like to record my thanks to R3 for its assistance.

My concerns are regarding the position of suppliers, particularly small suppliers, in two respects. First, under the new essential supplies provisions, small suppliers are required to continue supplying a company which has succeeded in obtaining a moratorium. Given small suppliers’ position at the bottom of the creditor waterfall, what protections will be in place to prevent small businesses having to continue supplying an entity that may then enter an insolvency procedure? Secondly, while the moratorium is welcome, there is concern that some larger creditors may game the moratorium by scheduling large repayments during that period, thus ensuring they get paid above other, smaller creditors. I expect the Minister may receive an amendment so that only interest and charges incurred during the moratorium rather than scheduled debt repayment can be eligible for super-priority in a subsequent insolvency procedure.

However, none of the provisions in the Bill will help business in continuing to trade after the pandemic if Part 4 of the Finance Bill, which changes the order of preferential creditors on insolvency, comes into being. Small suppliers will not only find themselves at the bottom of the pecking order for payment but in all probability will find access to credit, particularly from floating charge lenders, cut off. Floating charge lenders, who lend against a changing asset, such as stock, are very important, particularly to small businesses. They came into being after the rules on preferential creditors were changed in 2002 to what they are today, so why change it back just when they are needed more than ever? Who would continue to lend if the chances of getting their money back in the event of insolvency were severely diminished?

The Government have not published a proper impact assessment or the data used to arrive at the anticipated revenue to the Treasury of £185 million, but UK Finance, the body that represents many floating charge lenders, while noting that it is difficult accurately to model the policy’s impact on business lending, estimates that the policy could hit lending by well over £1 billion per annum and possibly far more. How can this be a cost-effective measure for anyone? At the very least, can the policy be paused so that a proper impact assessment can be done or could a 12-month cap on age debts eligible for preferential status be imposed? Would the Minister consider an amendment ensuring HMRC’s preferential claim does not outrank floating charges created before December 2020?

The Minister and I have discussed this issue before, and I hope that in his response he will update the House on the outcome of discussions he has had with his colleagues in the Treasury.

Corporate Insolvency and Governance Bill

Baroness Burt of Solihull Excerpts

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

The Bill does not propose a moratorium on claims for companies subject to insolvency procedures. Its purpose is to facilitate restructuring for distressed companies that can be rescued and continue trading for the benefit of all stakeholders, including creditors and employees. I fear that the capital market arrangement exclusion, in prohibiting a large number of companies from benefiting from the moratorium in this Bill, is not conducive to that end when reforms to facilitate restructuring and save businesses and jobs have never been more important. Surely the Government must ensure that the moratorium in the Bill is available in practice as well as on paper. It is certainly not with the capital market arrangement exclusion, as far as medium and large companies are concerned. I appeal to the Minister to reconsider and come back at Report with government amendments addressing this problem.

[Baroness Burt of Solihull (LD) [V]]

My Lords, I will speak briefly to Amendment 6, but I associate myself with the comments of my noble friends Lady Kramer, Lady Bowles and Lord Palmer. Amendment 6 in the name of the noble Lord, Lord Stevenson, to which I have added my name, concerns the threshold that a monitor must believe has been met for a moratorium to be suitable for a company.

Changing “would” to “could” seems on paper to be very small change to such a significant piece of legislation. However, given the relatively short timeframe within which the monitor must satisfy themselves that this criterion has been met, not to mention the difficulties in gathering all the relevant facts regarding the company’s trading, lending and general financial arrangements, it is likely that the cost of doing so will be significant. Under the current threshold these costs could be so high as to prevent the moratorium being used, which is obviously the opposite of what we all want to achieve. This slightly less definitive word could make a significant difference on a practical, working basis. I encourage the Minister to consider seriously this small but significant change.