Corporate Insolvency and Governance Bill

Baroness Laing of Elderslie Excerpts

Committee stage & 3rd reading & 3rd reading: House of Commons & Committee: 1st sitting & Committee: 1st sitting: House of Commons
Wednesday 3rd June 2020 Commons Chamber

[Dame Eleanor Laing in the Chair]

[The Chairman of Ways and Means (Dame Eleanor Laing)]

Before I ask the Clerk to read the title of the Bill, I should explain that, in these exceptional circumstances, although the Chair of the Committee would normally sit in the Clerk’s chair during Committee stage, in order to comply with social distancing requirements I will remain in the Speaker’s Chair, although I will be carrying out the role not of Deputy Speaker but of Chairman of the Committee.

Clause 1

Moratoriums in Great Britain

[Lucy Powell (Manchester Central) (Lab/Co-op)]

I beg to move, amendment 1, page 3, line 24, after “debts,”, insert—

“(da) a statement on behalf of any trade union made on behalf of employees affected by the proposed rescue of the company as a going concern,”

This amendment would include trade union views among the relevant documents which must accompany an application by the directors of the company to the court for a moratorium.

[The Chairman of Ways and Means (Dame Eleanor Laing)]

With this it will be convenient to consider:

Amendment 2, page 4, line 38, at end insert—

“(2A) For small businesses, in this Chapter, the initial period, in relation to a moratorium, means the period of 30 business days beginning with the business day after the day on which the moratorium comes into force.”

This amendment would extend the moratorium for small business from 20 days to 30 days for businesses facing insolvency.

Clause stand part.

Clauses 2 to 9 stand part.

Amendment 3, in clause 10, page 63, line 21, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period since 1 March 2020 during which a court in Great Britain is to assume that a person is not responsible for any worsening of the financial position of the company or its creditors that has occurred, following the onset of the coronavirus pandemic.

Clause 10 stand part.

Amendment 4, in clause 11, page 64, line 46, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period since 1 March 2020 during which a court in Northern Ireland is to assume that a person is not responsible for any worsening of the financial position of the company or its creditors that has occurred, following the onset of the coronavirus pandemic.

Clauses 11 to 12 stand part.

Amendment 5, in clause 13, page 69, line 12, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period since 1 March 2020 during which section 233B of the Insolvency Act 1986 (to be inserted by clause 12 of this Bill) does not apply in Great Britain in relation to a contract for the supply of goods or services to a company where the company becomes subject to a relevant insolvency procedure, and the supplier is a small entity at the time the company becomes subject to the procedure.

Clauses 13 to 16 stand part.

Amendment 6, in clause 17, page 76, line 1, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period since 1 March 2020 during which Article 197B of the Insolvency (Northern Ireland) Order 1989 (to be inserted by clause 16 of this Bill) does not apply in Northern Ireland in relation to a contract for the supply of goods or services to a company where the company becomes subject to a relevant insolvency procedure, and the supplier is a small entity at the time the company becomes subject to the procedure.

Clauses 17 to 22 stand part.

Amendment 13, in clause 23, page 79, line 20, leave out “section 18” and insert

“sections (Moratoriums in Great Britain: time-limited effect and renewal), (Moratoriums in Northern Ireland: time-limited effect and renewal), (Arrangements and reconstructions for companies in financial difficulty: time-limited effect and renewal), (Protection of supplies of goods and services: time-limited effect and renewal) and 18”

This amendment allows the Secretary of State to make consequential, incidental or supplementary or transitional provision or savings (including modifying the effect of this Act or any other enactment, making different provision for different purposes and binding the Crown) in connection with NC6, NC7, NC8 and NC9.

Clauses 23 to 47 stand part.

New clause 1—Ring-fence for unsecured creditors—

“(1) Section 176A of the Insolvency Act 1986 is amended as follows.

(2) After subsection (2), insert—

‘(2A) The prescribed part of the company’s net property available for the satisfaction of unsecured debts shall not be less than 30 per cent.’”

This new clause inserts into section 176A of the Insolvency Act 1986 a requirement that at least 30 per-cent of the proceeds from the sale of assets of businesses (after the deduction of the amounts owed to preferential creditors and the fees/expenses of the insolvency practitioners) in administration and liquidation shall be ring-fenced for payment to unsecured creditors.

New clause 3—Corporate governance: reforms—

“(1) Before 31 December 2020, the Secretary of State must—

(a) carry out a review of corporate governance;

(b) set out the conclusions of the review in a report;

(c) publish the report; and

(d) arrange for copies of the report to be laid before both Houses of Parliament.

(2) The report under subsection (1) must in particular set out the Government’s proposals for—

(a) ensuring greater accountability of directors in group companies which sell failing subsidiaries;

(b) legislating to enhance powers for insolvency practitioners in relation to value extraction schemes (removal of value from a firm at the expense of its creditors when in financial distress);

(c) further raising standards by ensuring that directors of a company publish regular explanations to their shareholders as to what extent the company can afford to pay dividends alongside its financial commitments such as capital investments, workers’ rewards and pension schemes.”

This new clause paves the way for the introduction of measures proposed in the 2018 consultation on Insolvency and Corporate Governance.

New clause 4— Preference for pension scheme deficits in case of insolvency—

“(1) The Secretary of State, after consulting the Pensions Regulator, may make regulations amending this Act to ensure that contributions owed to pension schemes by a company are treated in the categories of preferential debts under the Insolvency Act 1986 as a priority secured creditor.

(2) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.”

The intention of this new clause is to make pension scheme deficits a ‘priority creditor’ in the event of insolvency and therefore due to be paid before unsecured creditors.

New clause 5—Trade union representation in restructuring process—

“(1) Before 31 December 2020, the Secretary of State must—

(a) carry out a review of the role of trade unions in company restructuring arrangements;

(b) set out the conclusions of the review in a report;

(c) publish the report; and

(d) arrange for copies of the report to be laid before both Houses of Parliament.

(2) The report under subsection (1) must in particular set out the Government’s proposals for ensuring that trade unions representing employees affected by any proposed restructuring are—

(a) provided with all the information made available to the court,

(b) fully consulted by the directors of a company before any application for restructuring is made, and

(c) given the opportunity to contribute to decisions made by the court affecting their members.”

The intention of this new clause is to require mandatory discussion with trade union representatives once a company has entered the restructuring process.

New clause 6—Moratoriums in Great Britain: time-limited effect and renewal—

“(1) Part A1 of the Insolvency Act 1986 (inserted by section 1 of this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).

(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part A1 of the Insolvency Act 1986 should continue to have effect for a specified further period of no more than one year.

(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.

(4) The Secretary of State must keep under review the operation of Part 1A of the Insolvency Act 1986 during the period for which it has effect.

(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”

This new clause would terminate the free-standing moratorium provision for Great Britain on 30 September 2020, subject to temporary renewal for up to one year.

New clause 7—Moratoriums in Northern Ireland: time-limited effect and renewal—

“(1) Part 1A of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)) (inserted by section 4 of this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).

(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part 1A of the Insolvency (Northern Ireland) Order 1989 should continue to have effect for a specified further period of no more than one year.

(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.

(4) The Secretary of State must keep under review the operation of Part 1A of the Insolvency (Northern Ireland) Order 1989 during the period for which it has effect.

(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament and the Northern Ireland Assembly no later than 15 September 2020.”

This new clause would terminate the free-standing moratorium provision fin Northern Ireland on 30 September 2020, subject to temporary renewal for up to one year.

New clause 8—Arrangements and reconstructions for companies in financial difficulty: time-limited effect and renewal—

“(1) Part 26A of the Companies Act 2006 (inserted by section 7 of this Act and Schedule 9 to this Act) ceases to have effect on 30 September 2020, subject to the condition in subsection (2).

(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that Part 26A of the Companies Act 2006 should continue to have effect for a specified further period of no more than one year.

(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.

(4) The Secretary of State must keep under review the operation of Part 26A of the Companies Act 2006 during the period for which it has effect.

(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”

This new clause would terminate the new restructuring plan provisions on 30 September 2020, subject to temporary renewal for up to one year.

New clause 9—Protection of supplies of goods and services: time-limited effect and renewal—

“(1) Sections 233B and 233C of the Insolvency Act 1986 (inserted by section 12 of this Act) cease to have effect on 30 September 2020, subject to the condition in subsection (2).

(2) The condition in this subsection is that the Secretary of State has made regulations by statutory instrument providing that sections 233B and 233C of the Insolvency Act 1986 should continue to have effect for a specified further period of no more than one year.

(3) Regulations under this section may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.

(4) The Secretary of State must keep under review the operation of sections 233B and 233C of the Insolvency Act 1986 during the period for which they have effect.

(5) The Secretary of State must arrange for a report of a review under subsection (4) to be laid before both Houses of Parliament no later than 15 September 2020.”

This new clause would terminate the widening of Ipso facto (termination) clauses in supply contracts on 30 September 2020, subject to temporary renewal for up to one year.

That schedule 1 be the First schedule to the Bill.

That schedule 2 be the Second schedule to the Bill.

That schedule 3 be the Third schedule to the Bill.

Amendment 7, in schedule 4, page 122, line 38, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period after this Act comes into force during which the Secretary of State may by regulations made by statutory instrument provide for any temporary modifications to primary legislation in relation to moratoriums in Great Britain made by Part 2 of Schedule 4 to cease to have effect.

Government amendment 15.

That schedule 4 be the Fourth schedule to the Bill.

That schedule 5 be the Fifth schedule to the Bill.

That schedule 6 be the Sixth schedule to the Bill.

Government amendment 16.

That schedule 7 be the Seventh schedule to the Bill.

Amendment 8, in schedule 8, page 165, line 28, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period after this Act comes into force during which the Department for the Economy in Northern Ireland may by regulations provide for any temporary modifications to primary legislation, or temporary Rules under Article 359 of the Insolvency (Northern Ireland) Order 1989, in relation to moratoriums in Northern Ireland in made by provision made by Part 2 of Schedule 8 to cease to have effect before the end of the relevant period.

Government amendment 17.

That schedule 8 be the Eighth schedule to the Bill.

Government amendments 18 to 25.

That schedule 9 be the Ninth schedule to the Bill.

Amendment 9, in schedule 10, page 203, line 15, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on or after 27 April 2020 on the statutory grounds specified in section 123(1)(a) or section 124 of the Insolvency Act 1986 (that a written demand has not been paid within 3 weeks) where the demand was served during that period.

Amendment 10, page 209, line 36, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on the grounds specified in Part 2 of Schedule 10 to this Bill (except where coronavirus had not had an effect on the company).

That schedule 10 be the Tenth schedule to the Bill.

Amendment 11, in schedule 11, page 211, line 2, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company may not be presented on or after 27 April 2020 on the grounds specified in sub-paragraph (a) of Article 103(1)(a) or Article 104 of the Insolvency (Northern Ireland) Order 1989 Order (that a written demand has not been paid within 3 weeks) where the demand was served during that period.

Amendment 12, page 216, line 25, leave out “June” and insert “September”

This amendment would extend to 30 September 2020 the period in relation to which petitions for the winding up of a registered company in Northern Ireland may not be presented on the grounds specified in Part 2 of Schedule 11 to this Bill (except where coronavirus had not had an effect on the company).

That schedule 11 be the Eleventh schedule to the Bill.

That schedule 12 be the Twelfth schedule to the Bill.

That schedule 13 be the Thirteenth schedule to the Bill.

That schedule 14 be the Fourteenth schedule to the Bill.

Amendment 14, Title, line 3, after “make” insert “temporary”

This consequential amendment clarifies the temporary nature of the Bill’s provisions.

[Lucy Powell]

As my right hon. Friend the Member for Doncaster North (Edward Miliband) and I have said, we support the principle of the Bill and urge the Government to do more to support businesses, so that they can remain solvent and do not need to use these provisions. I hope the Minister will take the amendments in the constructive way they are meant. I will speak to each of them in turn and set out why we are seeking reassurances or think that the Government should consider changes to the Bill as it progresses. This has been a very truncated process, so we are relying on Ministers’ good will to take on board not just the comments I am about to make but those made on Second Reading, some of which were excellent suggestions.

I will take the self-explanatory amendments first. Amendments 3 to 12 inclusive would extend the time limits of the covid-19-specific provisions in the Bill. We welcome the retrospective nature of the provisions, but as we have discussed with the Minister, we suggest that the Government amend the Bill to extend the time limits for a number of the provisions, as they are insufficient given the prolonged nature of the crisis. Specifically, the suspension of the wrongful trading liability and statutory demands and winding-up petition measures should be extended to the same date as when the AGM and company account filing measures are valid, which is until 30 September.

Clearly, there was a sense from Government when the Bill was being drafted that on 30 June, most things would be back to business as usual. It is now clear that many sectors will not even be partially open for business again by that deadline—I am thinking particularly of hospitality, travel, tourism and the arts and their associated supply chains. They will not even have begun trading by the end of this month, let alone be getting back to any kind of solvency.

--- Later in debate ---

[The Chairman of Ways and Means (Dame Eleanor Laing)]

I thank the hon. Gentleman for his point of order. I can well understand his consternation. The behaviour of hon. Members when they are outside this building is, of course, not a matter for the Chair, but what is a matter for the Chair and for Mr Speaker is the safety of Members of this House, of people who work here, and of the many, many people who have continued to work here, through a sense of duty, during these last difficult weeks. It will be obvious to the Committee and to anyone watching our proceedings that Mr Speaker has gone to a great deal of effort to make sure that Members and staff working here are protected. Social distancing rules, as one can see by looking at the Benches and the way in which this entire building is now set out, have been very rigorously developed to make sure that everyone who works in this building, who is here to do their duty, is protected and will not put other people, including their constituents and their families, at any risk.

If any Member of this House is openly flouting the rules that we have asked every citizen of the United Kingdom to observe to keep the virus under control, and to protect the vulnerable and to protect the NHS, then that Member is putting not only himself or herself at risk, but everyone else at risk as well. I hope that the hon. Gentleman’s observations will prove not to have been accurate. I am not suggesting that he would say that they were, but I cannot make any comment until I know the facts for certain. I hope that the facts are not as he has stated them, but if it transpires that the facts are as he has stated them, then it should be incumbent upon anyone coming into this building, if they know that they have put themselves at risk of contracting or passing on the virus, to act responsibly. I thank the hon. Gentleman for his point of order.

We will resume the Committee stage. I was hoping I would have some sort of indication that someone might wish to speak. I call Sarah Olney.

[Sarah Olney (Richmond Park) (LD)]

Thank you, Dame Eleanor. I was not expecting to be next, but I willingly take my place. I state my intention not to press my amendments, but I would just like to say a few words on why I tabled them.

We are in an emergency situation. The response to coronavirus has been first and foremost a public health response, but the necessary measures taken to contain the spread of this appalling virus, supported by all the hon. Members of my party, have now resulted in an economic crisis. While we look forward to a point where the public health emergency has passed at least sufficiently to allow some semblance of a normal life, the economic crisis is likely to have longer and more far-reaching effects. In my constituency, as in those of every parliamentary colleague I am sure, the most immediate impacts are being felt by our small businesses and the self-employed. If we are to plot the most effective path out of this crisis, it is to our small and growing businesses that we should allocate the most care and attention. Apart from the important role that they play in supporting our communities and providing jobs, the new businesses that will emerge from the current shutdown will be offering the innovative goods and services necessary for a new way of life that we may have to get used to. Our recovery—both physical and economic—depends on the next generation of entrepreneurs, and it should be the first priority of the Secretary of State to identify and support them.

The Liberal Democrats support the temporary measures in the Bill. They are sensible measures that should carry successful businesses through the current crisis until such time as they can thrive again on their own terms. We support them, however, only as temporary measures designed to respond to the specific challenges posed by the current crisis. We oppose the bundling into the legislation of permanent changes to our insolvency and corporate governance processes. Permanent changes should be subject to a greater level of scrutiny and debate. My amendment 14 sought to put all the proposed changes on a temporary footing, able to be renewed, but also allowing the proposed permanent measures to be reintroduced to the House at such time as we may be able to consider and debate them properly.

Introducing the proposals as temporary measures would also allow their effect to be properly analysed. Our particular concern is for the ipso facto clause, which can be triggered if an insolvency effectively ends a contract to supply. This will require key suppliers to continue to supply struggling companies, despite the risk that they may not get paid. This transfers the risk from the struggling company to the supplier, which, whether in an economic crisis or not, is unacceptable. In times when cash flow is limited, it is not sufficient protection for a supplier to get in the queue with other creditors in the event of one of its customers falling into administration. Suppliers should retain the right to choose to withdraw their services if they perceive that their resources will face a lower risk return elsewhere. To compel them to continue their supply would be unethical.

I am particularly concerned that such a change would have a disproportionate impact on smaller businesses, especially those that only have the capacity to service a handful of clients, and would be unduly disadvantaged by being required to supply goods and services without the certainty of being paid. I accept that there is a balance to be struck between the needs of customers and suppliers, and that during these difficult times supply chains are critical and need to be supported, but we need to take time to consider the long-term risks of introducing such a change to our insolvency procedures, and the introduction of emergency legislation is not that time.

The acid test of any new legislation at this time should be whether its provisions stimulate and support economic activity. There will be, regrettably, some businesses that will not survive the shutdown. For the sake of those who lose their jobs and livelihoods, it is imperative that capital and investment can be quickly diverted towards those endeavours that can thrive and provide new employment and economic activity. The increase in the scope of exclusions to the ipso facto clause will have precisely the reverse effect, injecting precious working capital into companies that cannot create economic value from it. Now more than ever is not the time to restrict our small business activity in such a way. I urge the Government to adopt the Liberal Democrat proposal that all the provisions of this Bill be time-limited and that we consider the permanent provisions more fully at a later date, when we would have greater insight into the impact of their introduction on our business environment.