Corporate Insolvency and Governance Bill

Baroness Warwick of Undercliffe Excerpts

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

[Baroness Warwick of Undercliffe (Lab) [V]]

My Lords, until recently I was a member of the board of the Pension Protection Fund—PPF—so, like my noble friend Lady Drake, I want to focus on the impact of the Bill on defined benefit pension schemes.

I recognise the intent and urgency behind the Bill. Businesses have been asked to take extraordinary measures to help control this terrible virus, and we need to ensure that viable businesses survive and get back on their feet. Defined benefit pension schemes and their members want to know that sponsoring employers will ensure that member benefits are secured over the longer term. However, there is a significant shake-up of insolvency, and some of the changes, however well intentioned, could have unintended consequences.

The PLSA and others have highlighted potentially serious consequences for underfunded DB schemes and the PPF. The PPF plays a vital role in protecting defined benefit schemes and enjoys broad cross-party support. We need to ensure that it can continue to perform the role that Parliament has given it. Some provisions in the Bill might make that difficult: they could reduce the ability of the PPF and pension schemes to have any influence in a company restructuring; they could push schemes and the PPF further down the creditor pecking order; and they could affect the amount that schemes and the PPF might otherwise receive in recoveries.

I want to focus on two things. The Bill proposes a new moratorium to provide struggling businesses with some breathing space to speak to creditors and to try to find a way to continue as a going concern. If a company becomes insolvent within 12 weeks of a moratorium ending, some pre-moratorium debts will be granted super-priority in the insolvency. At present, these are on a par with pension debts but under the proposed change they would rank above pension debts. By elevating unsecured debt finance over other unsecured creditors, there could be a serious detrimental impact on DB schemes and the PPF. It stands to reason that if some creditors get priority status and so, in the event of insolvency, get more, others will get less. Also, those with finance debts and super-priority could start to game the system, as the noble Baroness, Lady Bowles, pointed out—for example, by taking equity in a company or accelerating all debts and loans to bring them into super-priority status.

Neither the moratorium nor the restructuring plan appear to count as qualifying insolvency events, so there is no provision, as happens now, to trigger the start of a PPF assessment period or the Section 75 debt. Therefore, as my noble friend said, neither the scheme nor the PPF have a seat at the table when important discussions about the company’s future are happening. That does not seem right or fair.

This matters. There are still more than 10 million members in about 5,500 DB schemes in the UK, the majority of which are already in deficit. Recoveries from insolvent employers are a vital income stream for the PPF: 12%, or about £3.8 billion, of its current assets have come from recoveries, helping it to protect members and reduce the strain on levy payers. The change in the Bill could mean that the PPF needs to raise more levy than it would otherwise have to do from other, solvent businesses.

I believe that these issues could be remedied without a major impact on the overall intent of the Bill. To protect pension schemes and their members, the Government should not let other unsecured creditors—banks or hedge funds, for example—leapfrog up the creditor queue. They should build into the moratorium and restructuring plan appropriate safeguards to ensure that the voice of the PPF is fairly represented so that, as now, the PPF can exercise schemes’ creditor rights and represent their interests. Suggestions such as those must surely be worth considering in Committee.

I support the overall intent of the Bill but I want to make sure that it does not undermine DB schemes and the retirement funds of their members throughout the country. The Minister said at his helpful briefing yesterday when I raised this matter, “Watch this space”. I hope that that means that officials can work with the PPF and others to find solutions.