Administration and Insolvency

Debate between Bill Esterson and Steve Rotheram

Wednesday 27th November 2013 Commons Chamber

[Steve Rotheram]

I am certain that those four factors are important, but start-up credit is a major impediment to the long-term success of smaller, micro-businesses. One in six small and medium-sized enterprises goes bust in the UK. In 2011-12, something like 120 SMEs per day were going into administration or liquidation. Anything that Parliament can do to assist those businesses to grow and to take on additional staff can only benefit the country as a whole.

I also want to put on record my thanks to Unite the union, which, despite the Prime Minister’s constant jibing, works tirelessly to support its members and which was as determined as I was to see production remain in Liverpool. I know the Minister and her Department are aware of this case, and it is this recent episode on which I wish to focus much of my contribution tonight as it clearly illustrates the issue at hand.

Trigon Snacks was a nut production factory with an annual turnover of approximately £30 million. The company produced peanuts for pub favourite brands such as Big D and Planters, and the business had profitable contracts with a number of large supermarket chains.

Following the company’s success at winning an increased order book with Sainsbury’s, Trigon doubled its production, introducing new shift patterns for the work force. That resulted in negotiations between management and the union to reward staff with a pay rise, which they had forgone for many years to secure the viability of the company. Indeed, some of the loyal work force had given more than 30 years of service to Trigon. Everything in the garden looked rosy.

To meet the new targets, Trigon stepped up production but soon encountered cash-flow problems, due to the purchase of extra plant, material, raw stock and associated manufacturing costs. To meet that short-term liquidity problem, Trigon approached the Royal Bank of Scotland for a loan totalling approximately £1.2 million. Given the developments this week with RBS, this might be another case that requires further scrutiny from the Secretary of State as it is clear that, for whatever reason, the company, despite being profitable, was not awarded the loan. When that loan could not be guaranteed, the business was destined to fail. RBS’s decision came in August and just a month later the business was put into administration. It is also worth noting that at the time of entering administration the company’s stock value alone was £2.7 million.

Disgracefully, 64 members of staff were handed immediate redundancy notices without prior warning, consultation with their trade union officers or even the courtesy of the administrator writing to me as the local MP. That still rankles with those who lost their jobs. Those employees had given decades of service and yet they were called to the works cafeteria for a routine meeting, had their names read out and were then told not only that they were losing their jobs but that they had to go promptly to clear their desks and lockers before being escorted from the premises by security guards who had been hired specifically to oversee that draconian act.

Having met Unite officials and staff at the factory immediately after the redundancies were announced, I became aware that numerous cases of unfair dismissal were set to be lodged alongside claims for protective awards by the union. Many of those shown the door have found it extremely difficult to find alternative employment despite being skilled factory workers with a wealth of experience.

I should make it clear that I am not suggesting the administrators did anything illegal, but I believe it was certainly unethical and I told them so. It remains likely that Unite will seek 30 days’ pay for its members through protective awards, a cost that is likely to be borne by the Exchequer. However, once Trigon was in administration only two outcomes were likely. First, the administrator could look to keep the business operational by selling it as a going concern. Although that would not absolutely guarantee the future of the business, it was hoped that those who bought the going concern would maintain production at the site, look to restructure the business, re-launch the brand and invest in improvements. There was another option: it would result in the administrator accepting a bid from a company that would close the factory, sell the stock, plant and machinery, transfer production to another site and make the whole work force redundant. In other words, the fear was that an asset stripper would decimate the business for a quick profit.

In the case of Trigon, despite my best efforts and those of Unite it looked likely that the doomsday scenario would be the most probable outcome and that the administrators, Duff and Phelps, would complete a sale that would maximise a better return for creditors but that would inevitably result in the loss of production at the Liverpool factory.

That is where I think that the balance is all wrong. I know that the closure of any factory is a tragedy for that particular business and work force, but when it makes no economic sense it is even harder for those facing redundancy to accept. When the result also lands the Treasury with a hefty bill for workers’ redundancy payments and increased benefit bills—not to mention the devastation to the local jobs market, the loss of business rates and the blight of a large empty factory—questions need to be asked. I believe that the need to ensure that administrators take greater control of the social impact of the bids they accept is now even greater.

The cold reality is that none of those factors could, in law, be taken into consideration by the administrators, and I believe that that is fundamentally wrong and needs to change. Some people may argue that administrators indirectly take all those factors into consideration as they look to keep businesses alive as going concerns, but they do not have a mandatory requirement to consider the social consequences. The law only directs them to make the biggest return for creditors, no matter what the consequences might be for communities.

At the end of the day, the potential to asset-strip the Walton factory collapsed, as only one bid remained, which set out to retain production locally, and this is where I do give some credit to the administrators for working with myself and the Unite union throughout the evening to secure a deal as a going concern.

We were lucky. The Trigon factory was saved. It still exists today, in the guise of a new company called Natco, but minus the 60-odd staff originally sacked. I have not given up hope of restoring the work force to its full complement, and getting those workers who were wrongly dismissed back on site. I know that many of them are facing a bleak Christmas for the first time in 30 or 40 years, through absolutely no fault of their own, with, yes, the fiscal costs borne by the state, but the human cost is much more difficult to measure. All that is because the initial shortfall loan could not be agreed with the banks.

I am aware that when it comes to the process of administration, nothing about what I have described is extraordinary, or dissimilar to the experiences of many others in this place. This is where I believe that reform should be considered, even though I appreciate that it is a complex area of law. The primary legislation governing insolvency is the Insolvency Act 1986. As the Minister is no doubt aware, the last Labour Government radically reformed legislation in this area to modify insolvency laws through the Enterprise Act 2002.

The raison d’être of our reforms was as PricewaterhouseCoopers explains:

“The Government’s intention was to create a shift in insolvency culture, with a greater emphasis placed on company rescue and rehabilitation, fairness for all creditors and making it tougher for offending directors”.

Those reforms achieved a great deal. Indeed, as PWC went on to say, the

“insolvency landscape transformed; administrations have now largely replaced administrative receiverships as the primary insolvency procedure, and many businesses have been preserved via this route. Furthermore, other solutions have evolved to facilitate the turnaround, restructuring and rescue of businesses”.

So progress can be made—it has already been made—to change the culture within this field and I am sure that this kind of independent analysis is welcomed across the House. But now I think it is time to go further.

In the list of responsibilities laid down on licensed insolvency practitioners we need a further mandatory requirement that consideration should be given to the social consequences of every bid they receive and, critically, that they should have the ability to award a sale of the asset that offers the most protection for staff, local communities and the taxpayer.

My contention is that greater consideration is needed of the impact on the public purse and our manufacturing capabilities. It seems nonsensical to me that greater consideration is not given to the impact that insolvency has on the Exchequer—and, equally importantly, the area in which the closure is proposed. I am not suggesting that those two factors should be exclusive, or that they should be given pre-eminence in deliberations, but there must be some reflection of the wider social impacts of each bid. I am acutely aware that this will not always ensure that asset-strippers are not awarded businesses. I am also aware that it will not always ensure that British workers stay in work and that their jobs will not just be exported overseas once the sale is completed.

[Bill Esterson (Sefton Central) (Lab)]

I am sure that my hon. Friend is coming to the end of his speech, but he is absolutely right about social responsibility being an important part of the way in which insolvency is handled, and I welcome that point. Does he agree that, bearing in mind the example he gave of the way in which the bank has behaved, it is vital that banks change their behaviour so that they take greater responsibility to stop insolvency in the first place?

[Steve Rotheram]

I could not agree more with my hon. Friend, because that is exactly the scenario that I am painting with this company. Trigon was a viable, profitable company with a short-term cash-flow problem that could not get a bail-out from the banks, which, we should not forget, are owned by the people of this country, who rely on those companies to provide them with suitable jobs.

We must ensure that there is a chance, as in the case of Trigon, where a factory was at the heart of one of the most economically deprived areas in the UK—that is true of Liverpool, Walton and there are areas of social deprivation in my hon. Friend’s constituency too—that other bids are considered that would keep people in work and maintain UK production.

Liverpool city council has been successful in attracting new industries to our city. In north Liverpool, we continue to work to attract inward investment and businesses, and do all that we can to ensure that our workers are in full-time employment, but that is incongruous if the net result is that we haemorrhage jobs from profitable companies, which we give to asset strippers to break up, and sell brand names for products that are manufactured abroad, then import the same products back into the country.

Mesothelioma (Legal Aid Reform)

Debate between Bill Esterson and Steve Rotheram

Tuesday 26th June 2012 Westminster Hall

[Bill Esterson]

My hon. Friend has a long and distinguished record of fighting for those suffering from many industrial diseases, especially mesothelioma. He has made the point well: 200 people have died since the last time the issue was debated. That demonstrates the urgent need for the Minister to indicate exactly when the review will be held and how quickly it will conclude.

[Steve Rotheram (Liverpool, Walton) (Lab)]

My hon. Friend will be aware, as I am, of constituents who have unfortunately contracted asbestos-related diseases such as mesothelioma. Why are people who have terrible diseases through no fault of their own being doubly punished by the Government? Is it a case of the law of unintended consequences, or does my hon. Friend believe that they are being targeted by this uncaring Government?

[Bill Esterson]

I thank my hon. Friend and neighbour for his question, and I hope that the Minister will answer it. We could all make our guesses as to the true motives. There are well-established financial links between the Government and the insurance industry, which might be at the heart of why things are being done in the way that they are.

It cannot be right that victims of asbestos-related diseases should be required to surrender a quarter of the damages that they have been awarded to pay for legal costs. Those damages are awarded to recognise and compensate men and women who have suffered terribly, if it is at all possible to compensate them for the pain, suffering and life-shortening that resulted from their work.

Mesothelioma has an extraordinarily long latency period of up to 60 years. As well as those 30,000 who have already died in the United Kingdom from mesothelioma, an estimated 60,000 more are yet to lose their lives due to past exposure, the vast majority of which occurred at work.

Local Government Finance Bill

Debate between Bill Esterson and Steve Rotheram

Tuesday 10th January 2012 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

I shall speak about the business rates proposals, the many gaps in the Bill and the unanswered questions. The councils that have faced the biggest cuts will lose most from the proposed changes to business rates. The impact of the local government cuts on businesses will take many years to work their way through, because there will be less money in the economy where the cuts in the public sector are greatest. In Sefton the cuts are already affecting businesses that rely for much of their trade on the public sector. The economy in Sefton, Liverpool and across the north-west will face greater pressures than the areas where the cuts have been far smaller.

[Steve Rotheram (Liverpool, Walton) (Lab)]

Would my hon. Friend be surprised to hear that when I asked the Secretary of State, in this very House on 18 July, whether he would

“guarantee that Liverpool will not see a real-terms cut in its funding”

in the first two years following the changes, he said:

“Yes, it is going to do better out of this system”?—[Official Report, 18 July 2011; Vol. 531, c. 670.]

[Bill Esterson]

I am grateful to my hon. Friend, who is absolutely right. The Secretary of State made similar remarks in his speech today, and I will explain why he is completely wrong.

The reality is that even if the starting point for business rate retention is after the main element of the cuts has gone through, some businesses will struggle to survive in areas where the cuts have been greatest. Councils in those areas will therefore experience falling business rates, with a further impact on the services that can be provided by the councils that have faced the biggest cuts. Areas such as Sefton and Liverpool have some of the most deprived communities in the country. The scale of the Government’s cuts has already hit those communities harder than the more prosperous parts of the country, and that includes the loss of services to some of the most vulnerable.

Oral Answers to Questions

Debate between Bill Esterson and Steve Rotheram

Tuesday 21st June 2011 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

11. What recent assessment he has made of the effect on the economy of trends in the rate of unemployment.

[Steve Rotheram (Liverpool, Walton) (Lab)]

15. What recent assessment he has made of the effect on the economy of trends in the rate of unemployment.

[The Chief Secretary to the Treasury (Danny Alexander)]

The unemployment rate has fallen recently: in the latest data, it was 7.7%—down from 7.9% on the quarter. The Office for Budget Responsibility assumed at Budget 2011 that the structural rate of unemployment was unchanged from its previous trends at 5.25%. In the medium term, unemployment is expected to fall as the economy recovers, supported by the action taken by the Government, including measures published in the Budget and “The Plan for Growth.”

Sure Start Children’s Centres

Debate between Bill Esterson and Steve Rotheram

Wednesday 2nd March 2011 Commons Chamber

[Steve Rotheram]

My hon. Friend is of course right, and Colm Reilly was not the only one to say that. The Secretary of State for Communities and Local Government praised Liverpool city council for its efforts to come up with a budget, given the circumstances it finds itself in.

As I said, the indications are good, but it is much too early fully to evaluate all the benefits of Sure Start. That is precisely why we should be giving it a fair chance to bed in, rather than hobbling it before it has barely taken off.

[Bill Esterson]

I add my own congratulations to Liverpool city council for the way in which it has tackled the almost impossible task of managing the budget and protecting Sure Start and other key preventive services. I use this opportunity to call on Sefton council, which has its budget meeting tomorrow night, to follow Liverpool’s lead in protecting Sure Start and other vital services.

[Steve Rotheram]

As we have heard, the Government and certain Members just do not get any of this, but actually, Liverpool city council does get it. It is much maligned of late by the Con-Dems, of course, but, no thanks to the coalition, and despite an 18% cut to its early intervention grant, from which Sure Start funding must now be drawn, it has managed to secure the future of 22 of its centres and will work hard through its consultation process to find ways of avoiding the closure of the four that are threatened, which my hon. Friend the Member for Liverpool, West Derby referred to earlier.

However, this is no vindication of the Government’s approach, as unfortunately, service reductions are inevitable. City-wide, under-fives and their families will suffer as a consequence and, needless to say, Liverpool city council has been forced by the Government into the iniquitous position of having to take from Peter to give to Paul. Shuffling reduced resources has inevitably meant that protecting children’s centres has come at the price of other vital services.

I am particularly concerned about the broader, vaguer proposal tucked away in the coalition agreement to introduce payment by results into the Sure Start equation. Market forces bring with them risks, competition and inconsistency. People such as the hon. Member for West Suffolk (Matthew Hancock) may disagree, but in my book there is no place for any of those in the delivery of services to children and young families.

All this would of course be all well and good if the Government could present a reasoned, evidence-based case for change, but as usual they cannot. In fact, in their arrogance they appear to have gone out of their way stubbornly to ignore popular opinion and expert advice, proffered well in advance of their budget deliberations.

--- Later in debate ---

[Steve Rotheram]

My hon. Friend is absolutely right to make that point.

Secondly, the Committee urged the Government to give the programme time to bear fruit, given that even the oldest tranche of centres was only about six years old at that stage. The Committee said:

“It would be catastrophic if Children’s Centres were not afforded long-term policy stability and security of funding while evaluation is ongoing.”

Thirdly, the Committee categorically urged against the removal of ring-fencing, saying:

“We consider that it would be unwise to remove the ring-fence around Children’s Centres funding in the short or medium term; putting Centres at the mercy of local vicissitudes would risk radically different models and levels of service developing across the country, with differences out of proportion to the variation in community needs.”

Some Tory Members served on that Committee, so this was a cross-party report.

[Bill Esterson]

I received a letter from the chair of the governors at the St William of York Catholic primary school. They also manage the Thornton children’s centre in Crosby and they tell me that they have seen a marked improvement in the school readiness of the children who attend the centre and whose families use it compared with that of those who do not. That kind of evidence is as important as what is in the Select Committee report or elsewhere. It puts the record straight in respect of what the Chairman of the Select Committee said.

[Steve Rotheram]

Of course evidence, anecdotal or otherwise, is always a useful tool.

The Government’s response to the Committee’s recommendations was to rush headlong into decisions, to cut funding and to remove the said ring-fencing. In short, the response was to dismiss entirely the logical, considered advice of those best placed to offer it, who included some of their own Members. I know that the Prime Minister is not a man for detail, but you know a policy is truly shambolic when even the Prime Minister fluffs his own case and defence. On 9 February, he arrogantly told the House: “On Sure Start, the budget is going up from £2,212 million to £2,297 million. The budget is going up. That is what is happening,” but that was downright wrong. Not only did he confuse the Sure Start budget with the broader early intervention grant in which it is being subsumed, but he used 2012-13 figures. The EIG is being cut this year by 11%—down from £2,482 million to £2,212 million. So the numbers were out, the dates were out and the argument was out. What hope for our children in the face of such cavalier amateurism?

The key to Sure Start programmes lies in the name, but thanks to the coalition’s cynically calculated decision to pass a poisoned chalice on to local authorities in the guise of localism, millions of babies and toddlers are now set to miss out on the sure start in life they might otherwise have enjoyed. I truly wonder how the Ministers responsible—fathers all—can sleep soundly at night.

Children’s Centres

Debate between Bill Esterson and Steve Rotheram

Wednesday 2nd February 2011 Westminster Hall

[Bill Esterson]

I am grateful to my right hon. Friend. His point about how vital it is to keep the network going is extremely well made. Perhaps I can make my own comments in support of that argument.

The network is so important. Families often use several children’s centres, not only one, and those centres work closely together. I cited some of the numbers of families who use those centres, and I have seen how they are now an integral part of building successful and sustainable communities, and bringing together families with different backgrounds from different parts of the same community. If that network is broken in any way, it would be a backward step.

I believe that children’s centres are as important in phases 2 and 3 as they are in phase 1. Pockets of deprivation and people who are isolated exist in all parts of our communities, not only the most deprived areas. Therefore, it is essential that the network is retained. How will the Minister ensure that councils carry out the Government’s stated wishes to retain the network? At the moment, it appears that in many local authorities the money is not being passed on to keep the networks open. The removal of the ring-fencing, and the fact that the grant is not a like-for-like replacement of funding, leaves that question open. The Minister will say that such matters are down to local determination, but if the Government are serious about retaining Sure Start children’s centres and the network, they must consider intervening in local authorities to ensure that their stated policy is delivered on the ground.

[Steve Rotheram (Liverpool, Walton) (Lab)]

This is my first opportunity to serve under your chairmanship, Mr Sheridan, and I am delighted to do so. I congratulate my hon. Friend on securing the debate. We have spoken about the subject in private, and we are both passionate about it. Does my hon. Friend agree that Sure Start centres are a lifeline for the sort of communities that he and I represent? Councils in Sefton and Liverpool are faced with the most horrific decisions about the future of Sure Start centres because of the local government settlement. Does he agree that Sure Start centres in the most deprived communities in the country should be the most protected?

[Bill Esterson]

My hon. Friend’s constituency is next door to mine, and many of his constituents use Sure Start centres in my constituency, just as many of my constituents use centres in his constituency in Liverpool. The Holy Rosary children’s centre in Aintree village is used by people who live in Fazakerley and Walton. My hon. Friend’s point about protecting phase 1 centres in the most deprived areas is important, but I believe that phase 2 and 3 centres have come to deliver an equally important service for slightly different reasons. I would not like to see any of those centres go, and it is important to maintain the entire network. People use centres from phase 1 and from phases 2 and 3.

Let me turn to the report by my hon. Friend the Member for Nottingham North and some of the evidence that he produced on early intervention. He cites some examples that illustrate the importance of early intervention:

“A child’s development score at just 22 months can serve as an accurate predictor of educational outcomes at 26 years.

Some 54 per cent of the incidence of depression in women and 58 per cent of suicide attempts by women have been attributed to adverse childhood experiences, according to a study in the US.

An authoritative study of boys assessed by nurses at age 3 as being ‘at risk’ found that they had two and a half times as many criminal convictions as the group deemed not to be at risk…Moreover, in the at-risk group, 55 per cent of the convictions were for violent offences, compared to 18 per cent for those who were deemed not to be at risk.”

The report goes on to make it clear that the costs of investing in early years services are far outweighed by those of dealing with the problems created later in life. That is very apparent to people who use children’s centres in my constituency. They tell me that not only do their children do better at school than their older brothers and sisters who did not have the benefit of such a service, but that they can also start to see the benefits of their children mixing with other children and getting used to mixing with adults.

Clearly, children and families do better where that service is available. I am sure that the Minister accepts that the loss of that service would be a bad move.

Budget Resolutions and Economic Situation

Debate between Bill Esterson and Steve Rotheram

Tuesday 22nd June 2010 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

I have registered in the appropriate place my interest as the director of a small business.

I congratulate the hon. Member for South Northamptonshire (Andrea Leadsom) on her maiden speech. She made some interesting points about the banking system and the need to break up the bigger banks into small banks. Perhaps she will agree that no bank should be too big to fail, as that was one cause of the many problems that we have seen recently.

I should like to discuss the Budget’s likely impact on jobs, businesses and, in particular, my constituency. The Chancellor said that he had a plan to reduce the deficit, yet the Office for Budget Responsibility said that the deficit would have been halved under Labour’s plans. Our plan was to cut spending, but only when the economy was strong enough, and Tory and Lib Dem Members seem to have forgotten a simple rule of economics: the role of government is to intervene in a recession when the private sector is struggling. The evidence from history shows that that works time and again. The time to cut the deficit is once the recovery is strong enough, not when the private sector is still on its knees after the deepest recession since 1931, apart from the one following the war.

The OBR, by the way, is staffed by the same people who wrote the Treasury forecasts. The Tories and Lib Dems have made much of the lower growth rate predicted by the OBR had Labour’s approach continued, but in reality the OBR prediction factored in the market’s reactions on interest rates, which in turn allowed for the £6 billion of spending cuts that the coalition planned. The Financial Times commented that the OBR did not note any fundamental skeletons in the Treasury, so it had taken account of the changes since March’s Budget.

The Chancellor has adopted a programme of austerity. After the war, rationing continued under a programme of austerity. We really were all in it together, unless people bought on the black market, which of course the rich were able to do. For most people, however, it did not matter whether they had money or not, because of rationing: they could not buy things because they were not available. It was austerity based on scarcity. This time it is different. In this kind of recession, austerity hurts only those who are on low or middle incomes.

The increase in VAT will hit people on low incomes, and it will hit small businesses. When Labour cut the VAT rate, we saw a stimulus to the economy. The increase that the Chancellor announced today will have the opposite effect. The cap on housing benefit will also hit those at the bottom most, and reforms to benefits will not provide incentives for people to go into work. Removing tax credits for middle-income families removes a big incentive for many to work, particularly in the south, where middle incomes provide barely enough to get by.

The scale of the cuts is 25% for most Departments. That is a hell of a lot of cuts. It means the loss of front-line jobs, and many people in Sefton, and elsewhere on Merseyside, will suffer as a result.

[Steve Rotheram (Liverpool, Walton) (Lab)]

Does my hon. Friend agree that the real result of today’s Budget announcement will be huge increases in unemployment, which will have a devastating effect on the areas that we represent on Merseyside? That is something that we both predicted before the election, as did our friends on the Liberal Democrat Benches, who now seem to be siding with their friends in government.

[Bill Esterson]

I am grateful to my hon. Friend, who is absolutely right. Before the election, in his constituency and mine, the Lib Dems made much of their opposition to cuts in the current year, saying that it would increase unemployment, hit those on low and middle incomes, and increase homelessness and business failures. They were right to say so. When they changed their tune after the election, they did so purely for opportunistic reasons, not because they are interested in representing the people in the sorts of communities that my hon. Friend and I represent.