Corporate Insolvency and Governance Bill

Baroness Falkner of Margravine Excerpts

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

[Baroness Falkner of Margravine (Non-Afl)]

My Lords, it is a huge relief to be back here in the flesh. I give an enormous vote of thanks to all those who have made it possible. I apologise to the Minister for being unable to attend his briefing session on the Bill yesterday. I am afraid that the invitation, which came late on a Friday afternoon, somehow got missed in the flow of traffic to my inbox. If I had known that it was taking place, I would very much have liked to attend.

My remarks on the Bill will be rather limited. I declare an interest as a member of the Bank of England’s enforcement decision-making committee, which is part of the PRA structure. I will thus keep my remarks to the general questions that arise in the course of the Bill. Having said that, I welcome the Bill. It is urgently needed to provide the breathing space and flexibility for firms in the current circumstances. My main concerns are with the intent versus the wording in the Bill, and perhaps the Minister can reassure me as the Bill progresses. Let me give an example from Clauses 18 and 19, which give the Secretary of State powers to amend legislation. The use of the word “procedure” in those clauses is ambiguous and appears to give

“considerable discretion to the Government”.

They are the words of the Law Society, which has provided a briefing on this Bill, for which I am very grateful.

These clauses relate to the power to amend and make changes to insolvency or governance legislation through statutory instruments, which extend to both primary and secondary legislation and are indeed very broad. I understand the need for speed, but the nature of these decisions will depend on a number of unknowable factors. If the idea is to give protection to businesses that would be viable but for the effect of the pandemic, as the Explanatory Notes put it, that raises questions about viability and determining it, and the confidence that stakeholders can have in assessing that viability. Then there is the issue of temporary changes to the overall insolvency regime and how long they might last, as well as the method of their review.

Turning to the moratorium and the rule and powers of the monitor, while necessary at a time of economic stress, there is the risk that the moratorium might be overemployed by firms as a shield from creditor obligations. The results of the question about how many companies might seek this route makes me fear that there are inadequate safeguards in place to prevent them exploiting it. The Law Society’s suggestion is that there should be a simple test with clear qualifying criteria for firms employing this avenue to buy time. Have the Government had conversations with the Law Society about its concerns?

There is no maximum period for the moratorium, nor any limit to the number of extensions. My concern is that the ability of directors to seek extensions from the court, and the Bill’s lack of a maximum number of extensions, may constrain creditor rights, as many other noble Lords have put it. Is there not a real possibility that the directors of a company start in the hope that the business is saleable, but do not quite get that their financial position might be worsening? Does the relative unpredictability of the outcomes that this power allows not disadvantage creditors, particularly those small creditors that so many noble Lords have spoken about?

Should there not be an overall time limit for extensions by the court without creditor consent? There also seem to be insufficient safeguards regarding the appointment of the monitor or additional monitors, or indeed, their duties. Other than professional qualifications, there are no statutory requirements for the monitor to be independent of the directors of the company who make their appointment. When directors decide on a replacement or additional appointment, they do not have to explain to the court why a replacement is being made.

On the face of it, the rules of the court are too limited, but the role of the monitor is potentially too cosy in terms of relations with the directors, and the provisions of creditor rights are too weak. There is much in the Bill to commend but, given the haste with which it has been fast-tracked, much to worry about in terms of the exploitation of well-meaning legislation that may prove to have been inadequately thought through.

Corporate Insolvency and Governance Bill

Baroness Falkner of Margravine Excerpts

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

[The Deputy Chairman of Committees (Lord Bates) (Con)]

I have received a request to speak after the Minister from the noble Baroness, Lady Falkner of Margravine. After the noble Baroness, we will hear a response from the Minister.

[Baroness Falkner of Margravine (Non-Afl)]

My Lords, for clarity, I did not request to speak after the Minister; it was due to an inadvertent error that I ended up not being on the list to speak when I should have spoken. In fact, as I am speaking after the Minister, I will use the opportunity to make one or two general observations about this process that conform to what the noble Lord, Lord Hodgson of Astley Abbotts, and the noble Viscount, Lord Trenchard, have said.

This is the second Bill in which I am involved in legislative scrutiny. The first one was when we had a virtual House, and with this one we have a hybrid House. I can only concur with everything that has been said about how a hybrid House cannot work for any kind of complex or contentious piece of legislation.

These are pieces of legislation with implications that, as several noble Lords have said, go beyond the immediate health and economic emergencies. They should not be passed by this House unless and until we have the capacity to undertake proper scrutiny. Normally, my only excuse for speaking at this point would be if the Minister had said something on which I needed further clarification; I would then have spoken before he had sat down.

The idea that one is still continuing to speak to amendments in this manner is regrettable, but there is a broader point, also raised by the noble Lords, Lord Liddle and Lord Adonis: this is complex legislation, we do not know when we will revert to normal procedures, and a vaccine may not be found. I hope that this situation does not continue for very long, but it could continue for some time. In that case, do the usual channels deal with the legislation that is pertinent to the health and economic emergency that we face in this House through these proceedings, as a necessity, and therefore, park legislation that has very long-term implications for all kinds of governance in this country, until this is over? I do not blame the Government. They are trying their best to deal with an emergency facing the country. However, I wonder whether there is some level of complicity—I use that word with care—in the usual channels, that they so comfortably settle into these extraordinary arrangements. If people were truly aware of what was happening, of how we are passing legislation and how we are conducting scrutiny, even in terms of Oral Questions, they would be quite astonished.

Turning to the Bill, I am not going to use the notes that I would have used for this speech, but there are one or two things it is important to put on the record. I declare an interest as set out in the register, concerning the Bank of England, and that I am speaking in a personal capacity on this Bill. I have already spoken about the inappropriateness of doing this in this manner in Committee, but I also want to say a word or two about fast-track legislation. I sat on the Constitution Committee when it did a report on when and how Governments should use fast-track legislation. In all candour, and with the highest regard for the Minister, there are measures in this Bill that are simply inappropriate for fast-tracking through the Chamber in this way. These longer term and permanent changes should not be discussed today.

In light of that, I completely support Amendment 37 in the names of the noble Baronesses, Lady Bowles of Berkhamsted and Lady Altmann, for the Secretary of State to conduct a review of the provisions for a moratorium, and to lay a report before Parliament. They indicate that the review should be done in 18 months, which is a fair timescale.

I also support Amendments 2, 4, 8, 28 and 42, in the names of the noble Lords, Lord Stevenson, Lord Palmer, Lord Fox and Lord Hodgson, the noble and learned Lord, Lord Hope, the noble Baronesses, Lady Bowles and Lady Altmann, concerning all aspects of the independence of the monitor. The danger of the Bill not making clear the separation and independence of the monitor is a perception that there was a closeness between the directors of the company and a lack of transparency for creditors. I support those amendments essentially to assist the monitor, those insolvency practitioners. I hear what the Minister says about their own regulatory framework and the onus upon them to behave in an upright manner, but as he noted in his closing remarks, there are enough safeguards built into the regulation of insolvency practitioners whereby these amendments are otiose. I argue that by having them in this Bill—which is subject to review if Amendment 37 passes on Report—if they were entirely redundant, we could do away with them in 18 months. The Secretary of State could then lay before us the report that says that these amendments are redundant. I argue that this helps the monitor at this point, and on that basis, I intend to support them on Report.

[Lord Callanan]

I thank the noble Baroness. I am sure she understands that her comments about the hybrid House are not a matter for me. I have responsibilities in a number of areas, but the operation of this House is not one of them, so I will allow her to take those up with those Members who are responsible. I am merely a servant and am prepared to operate in whatever way the House sees fit.

Addressing the noble Baroness’s points about the Bill, it is important to recognise that permanent provisions have not been developed just in the short time since Covid-19. Some of the temporary provisions have, but the permanent provisions were the subject of a considerable period of consultation and engagement dating back to 2015. The process included the then Government’s review of the corporate insolvency framework, a public consultation in 2016 and an extensive period of engagement since then with a wide range of stakeholders. Additionally, the Bill includes regulation-making powers to enable changes to be made as and where necessary, so there has been extensive consultation. The intention to legislate in this area was announced in 2018, but this crisis has made it imperative. The Bill offers important new flexibilities and rescue opportunities that may help many businesses to continue trading during this crisis, which I hope the whole House would agree is the ultimate objective