Corporate Insolvency and Governance Bill

Jim Shannon Excerpts

2nd reading & 2nd reading: House of Commons
Wednesday 3rd June 2020 Commons Chamber

[Jim Shannon (Strangford) (DUP)]

I welcome the right hon. Gentleman to his position and wish him well. I have a bit of concern about what I refer to as predatory companies, which look for companies that are probably heading towards insolvency and see them as an opportunity to gain something. I wonder whether it is possible to ensure in the Bill that such predatory companies that would prey on those in trouble, of which there are many, are prevented from taking over an asset that is probably solvent in the long term but is not in the short term.

[Edward Miliband]

I agree with the hon. Gentleman’s intervention. I once used the word predatory in relation to companies and it was rather controversial, but I think the consensus may have changed. [Interruption.] Government Members are saying it has not; it was worth a try. The hon. Gentleman makes a really important substantive point on which I think Members from all parties can agree, and it goes to the width and breadth of this provision: we have to make sure that companies cannot use it as a way to take their employees for a ride. I know from my conversations with the Secretary of State and the Minister that the intention to make sure that that does not happen is shared throughout the House, but we have to give expression to it in the Bill, and I hope the Government will indeed do so.

Let me turn to some things that are not in the Bill—

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[Jim Shannon (Strangford) (DUP)]

I thank right hon. and hon. Members for their speeches and contributions. I particularly thank the hon. Member for Heywood and Middleton (Chris Clarkson) for his maiden speech, which we all thoroughly enjoyed. We were unable to provide him with what people refer to as a doughnut, but we were here to support him. I wish him well and look forward to his future contributions.

I was pleased to hear the comments of the hon. Member for Folkestone and Hythe (Damian Collins) about where football teams will be in future, and I thank him for his knowledge of football and sport. It is critical for football teams to have the revenue that comes from crowds attending matches. I am a Leicester City supporter and have been for almost 50 years—nearly all my life, or the best part of it. A number of MPs in the last Parliament were Leicester City supporters. Some of them are no longer here, but others have taken their place, and we hope that the Leicester City supporters club in this House might grow again—it was six before—to perhaps four or thereabouts. I was pleased to hear the hon. Gentleman’s contribution and his thoughts are helpful, because the smaller clubs probably depend entirely on the revenue generated by the supporters on a Saturday afternoon or Friday night, or whenever it may be, so this is very important.

At this time of economic crisis, it is essential that we get the Bill right. I put on record my thanks to the Government for all they have done in their response. It is all very well to criticise, and easy to do so, but we should give accolades whenever they are due. It is the right to thank Government for their response and particularly the Chancellor for what he has done, because he has been excellent and has tried hard at a very difficult time.

I represent many little towns with high street shops, as well as my main town of Newtownards, which recently won the champion high street award for Northern Ireland. I am well aware that, despite the grant funding that has been allocated, alongside the tax deferral option, many of those businesses will be unable to continue trading. I want to give a clear picture of the covid 19 position for those high streets and businesses—without mentioning any names, by the way—some of which have literally hundreds of thousands of pounds of stock in their shops, yet with no outlet at all and their summer stock ready to go. They have been unable to do anything with it and their shops have been closed. It is a difficult pill to swallow. Six months ago they were running successful businesses, employing between five and 20 staff in their shops, so this has been calamitous.

My hon. Friend the Member for North Antrim (Ian Paisley) will know that I put forward a suggestion to our parliamentary group meeting that we could introduce some sort of revenue that could help those businesses. Lots of businesses are going online, and I can give the House an example of something that is happening in the Republic of Ireland. The Government there are giving up to €40,000 for each business to increase its online business or to start a new online business, and I am just wondering whether that is something we in this House should be doing as well. I know that we are talking about insolvency, and I understand that, but this is also about how we can help businesses to grow and ensuring that they can do that. The shops that I referred to are small and medium-sized businesses. There are successful family businesses but they are facing great uncertainty, so I again make the plea to be cautious, compassionate and understanding with them as they try to get through this difficult situation.

It was no surprise to read in the Library briefing that the coronavirus outbreak has led to a decline in business activity and revenue across many sectors, causing a large negative shock to the economy. The average forecast for quarterly GDP growth in the second quarter, April to June, was 16% based on Her Majesty’s Treasury’s survey of investment banks, economic research organisations and other institutions in May 2020. However, the estimates are highly uncertain, including on the extent to which the economy will bounce back. Companies and shopkeepers, and other Members, have referred to the rental issue, and I want to make the important point that every landlord needs to review their rental charges. Is it not better to have a small rent coming in than to have no rent at all, given the rateable obligations on the businesses? Is it not better to come to some sort of an agreement, rather than holding fast to what the rental figures would normally be?

The Office for National Statistics’ survey on the business impact of coronavirus reported that, between 20 April and 3 May 2020, 78% of businesses that responded were continuing to trade and 20% had temporarily closed or paused trading. I have had something come up in my constituency—I am sure that others have as well—relating to businesses that have been able to trade without having to borrow from the banks, be they in construction or in fishing and fishing vessels, or other businesses on the high street. They have conducted their business over periods of six, eight and 10 years—to give three examples without naming who they are—and they have never had to borrow until now, when hard times have hit them. It was difficult for them to go to the bank and borrow money because they did not have a credit status that the bank could look at and say, “You have always made your payments on time.” They had never had to make any payments. One of the predicaments that I have contacted the banks about is that they need to understand that those who have been able to conduct their businesses over periods of six, eight and 10 years have shown that they can well manage money without having to borrow it. I would have thought that those businesses’ credit status was therefore suitable and that there should be no difficulty whatsoever. Again, I just make the point.

I reiterate the point made by the shadow Minister in relation to the pension scheme deficits. I support his concerns about where that will end up, and I hope that the Minister will give us some clarity on that matter and maybe some reassurance. I have no doubt that he will do that. Northern Ireland has the highest rate of temporarily paused business trading, at 25%. That is the highest in all of the United Kingdom of Great Britain and Northern Ireland. I know this to be true from personal experience in my constituency, and I am sure that my hon. Friend the Member for North Antrim will have seen that among the businesses in his constituency as well. We must get the help and support needed to enable those businesses to reopen. London and the south-east have the lowest level, with some 16%.

The industries with the largest proportion of businesses that have temporarily paused trading are the accommodation and food services, at 78%, and the arts, entertainment and recreation sectors at 80%. A small number, just less than 1%, responded to say that they had permanently ceased trading in that period. Of the businesses that continue to trade, 61% reported that their turnover had decreased and 25% reported that turnover had fallen by more than 50%, although I am aware of some whose turnover has fallen by as much as 80% to 90%. Almost all businesses—99%—reported coronavirus as being the reason for the turnover reduction outside of the normal range, so it is very clear what the issue is.

The Government responded to the circumstances they were presented with and did their best, given the fear we all had of coronavirus and all the uncertainty. They were trying to get us to a position where we were able to lessen the number of deaths. What would have happened if we had not done anything? What would have happened if the Government had just said, “Plough on ahead”? We would be in the most calamitous, destructive time ever, and I think we have to thank and congratulate the Government for what they have done.

The largest fall in turnover was in accommodation and food services. The pharmaceutical and agrifood sectors are incredibly important for me in my constituency. Tourism and hospitality rank up there at the highest because the economic focus of the local council, Ards and North Down Borough Council, is tourism and hospitality. That is where the growth is. That has been the growth for the past three to four years and it will be the growth for the next three or four years as well, but we need to ensure that help is there for tourism and hospitality to get out the other side. Some of the hotels need that. We have some clarification on hotels in Northern Ireland, and that is good news. It gives the hotels a chance to try to book for the end of July onwards. We have to try to ensure that things are going in the right direction.

The Government have helped those who are self-employed and those who have furloughed staff. Under no estimation can we doubt that that has helped greatly to ensure that things go forward. These are unprecedented times, and while I must thank the Government again for all the steps they have taken and for going the extra mile, I have real concern about many businesses that need more. I am referencing not failing businesses, but businesses that were thriving, doing well, creating employment, creating opportunity and boosting the economy, and they can thrive again.

I was pleased on 20 March 2020 when the Business Secretary announced that the Government would introduce measures at the earliest opportunity, together with temporary covid-19-related measures intended to help companies avoid insolvency. Following that, I welcomed the Government’s announcement on 23 April 2020 of other measures to protect companies from the aggressive use of statutory demands and winding petitions, particularly by commercial landlords. I welcome those measures to help business and to step in where possible. I further welcome the mixture of permanent changes to insolvency law and temporary changes to insolvency law and corporate governance to ensure that we help at this time but do not tie our hands for the future.

The proposal in the helpful document is that the help for businesses would be from 1 March 2020 to 30 June 2020 and one month after the provision comes into force. Will the Minister confirm that, in the event of the pandemic’s impact on businesses continuing beyond the end of that period, the provision may be extended for up to six months using secondary legislation, and that the process may be repeated? It is important that we know that, because it is not just about the short-term measures; it is about the longer term to encourage businesses to be able to do more.

To conclude, on behalf of the people and businesses of Strangford, whom I am very privileged to represent, I thank the Government for their financial intervention, but I ask for more short-term support, more help with tax deferrals and greater help with staffing problems. We will get through this, but I believe that the business sector is the only way we can. We will reap the benefits from anything that we pour in at this time. Those entrepreneurs will end up repaying more than the help they receive with the income that will be allowed to be generated.

I support the Bill. I understand the reasoning behind it, and I support it fully. As my hon. Friend the Member for North Antrim said, we understand that the implications will be for Northern Ireland as well. It is good to have that in place, but I ask for further grants to be allocated for special circumstances. That, however, is a debate for another day. As others have said, tomorrow will be a better day, but we have to work towards that day.

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

It is a pleasure to be on the Front Bench and at the Dispatch Box again as the shadow Business Minister, although I would have much preferred to make this speech safely and socially distanced in sunny Manchester—no offence.

I reiterate the thanks of my colleague, my right hon. Friend the Member for Doncaster North (Edward Miliband), to the Minister, the Secretary of State and their teams for all the engagement we have had on the Bill. Our objective, as the Opposition, is to be constructive, and to ensure that businesses get the support they need now and in the long term, to keep the number of insolvencies in the coming weeks and months as low as possible. As my right hon. Friend said, we support the overarching objectives of the Bill. However, we hope the Government can give us some reassurances in Committee. Many others today have voiced similar concerns.

I thank many colleagues from across the House for their speeches in this interesting debate. Obviously, the highlight was the maiden speech of the hon. Member for Heywood and Middleton (Chris Clarkson), who was a bit nervous about coming last out of his intake; but as a fellow Mancunian, I reiterate that the best was definitely saved till last.

Although we back the Bill today, we are clear that it should be the last resort for many businesses. There is much more for the Government to do now to support businesses so that, as my hon. Friend the Member for Bristol North West (Darren Jones) eloquently put it, the measures debated today are not necessary. Every previously viable business that needs to call on these insolvency changes because of our decision to shut down the economy for public health measures, is a business that has been failed. Ministers have recognised the huge scale of the situation, with the unprecedented support they have established to retain jobs and support businesses. That has been the right thing to do and we have supported it. However, as we enter the end of the lockdown phase, the challenges ahead are becoming clearer. More must now be done to rescue more businesses, and ensure that the recovery is as short and strong as possible. We must stop a second, and possibly a third or fourth wave of insolvencies arising from unmanageable debts and creditors. Any business that goes bust as a result of public health measures will lengthen and deepen the recession and leave long-lasting scars on unemployment levels and the wider economy.

Labour Members firmly believe that the cost of not doing all we can now to save businesses will be far higher than the cost of action today. Ultimately, the taxpayer will pay for the cost of failure, through lost tax revenues and higher unemployment over many years, not months. The Government need to renew their support package over the coming period, as it is now clear that the easing of lockdown will be longer and more complicated than was predicted at the start of this crisis. That is why we suggest that the temporary measures in the Bill should be extended today, rather than waiting until later.

Preventing insolvencies today, in and of itself, will not stave off insolvencies tomorrow, if the Government do not take a long view and ensure that businesses do not face a cliff edge. A second wave of support and sector-specific action is also required. Critically, if the recovery is based on unmanageable debt, it will be no recovery at all. In the immediate rescue phase, businesses and business organisations are asking for more discretionary grant funding to support the hardest hit businesses that have so far missed out, more flexibility with the furlough scheme, simplification of the CBIL scheme, and many other measures that have been mentioned today. Those include more clarity and joined up working on business critical issues such as quarantine measures, safety in the workplace, childcare, and shielded employees. The Government must not fall into complacency and think that their actions so far have been sufficient, because a second wave of support is urgently needed.

We have heard from a number of colleagues, notably my hon. Friends the Members for Aberavon (Stephen Kinnock) and for Cardiff South and Penarth (Stephen Doughty), and the hon. Members for Folkestone and Hythe (Damian Collins), and for Strangeford (Jim Shannon)—

[Jim Shannon]

It’s not Strangeford!

[Lucy Powell]

Sorry. Strangford. It’s just that the Member of Parliament reminds me of that—no, I’m only joking.

The economic emergency we are in is affecting different sectors of the economy in different ways, some particularly and devastatingly harshly. This will be a sectoral recession, and the Government response must reflect that. We have raised with Ministers the serious issues facing our manufacturers, car manufacturing, steel makers, the aerospace and defence industry, aviation and tourism, the hospitality industry, and other areas such as football. The crisis is also affecting supply chains in those sectors, and we have already seen job losses at premier British companies such as Rolls-Royce and McLaren. There have been layoffs in the airline industry, despite the furlough scheme, and despite warnings from many industry bodies about the failure to provide adequate support and liquidity to business now. Will the Government step up with the more urgent response that is needed for those sectors, which so many Members have asked for today?

Project Birch has potential, but talking must quickly be followed by action. The promise of jam tomorrow will not pay the bills today. The feedback I get from businesses, especially some of our most important and largest employers, is about how slow the discussions with Government are, compared with the urgency of the cashflow problems. For example, our world-leading aerospace, aviation, tourism and travel sectors now face what could be a final blow from the confusion and mixed messaging about quarantine measures.

As the former Prime Minister Gordon Brown said, and as the hon. Member for Hitchin and Harpenden (Bim Afolami) has warned, the scale of the debt that companies are taking on to survive this crisis is huge. We will see a debt-laden recovery, with demand unlikely to return to normal quickly for many. Coupled with that debt, the recovery is likely to be weak, deepening its economic impact, and with insolvency spread over the months ahead.

Once companies have to start paying back loans, further insolvencies are likely to follow, with recovery choked by high levels of unemployment, and low levels of confidence. Are the Government exploring with business organisations and the finance sector ways to mitigate the month-13 problem of Government backed loans with a more long-term solution, as was suggested earlier?

Finally, we need to do more to increase and generate demand through a green recovery plan, as the hon. Member for North Antrim (Ian Paisley) described, and to address the youth unemployment crisis. The Government must seize the opportunity to bring forward pipeline projects to put British businesses at the forefront of the green and digital revolution.

Turning to some of the specific measures in the Bill, we support both the permanent changes to insolvency law and the temporary changes to insolvency law and corporate governance, but with some caveats. A balance must be struck between allowing businesses to survive through the crisis and not removing essential protections for creditors, pension funds and employees. The trade unions and others here today have raised some serious concerns about this, with good reason, and I will say more on that in Committee.

We believe that there must be no revision of the directors’ duty of care to their employees and suppliers. The Bill must ensure that SMEs and smaller suppliers are protected when larger companies go into administration. As the hon. Member for Dudley South (Mike Wood) and others have said, the temporary measures need to be extended today.

The Bill is a big missed opportunity to address corporate governance accountability, as the hon. Member for Huntingdon (Mr Djanogly) outlined. The collapse of Carillion was a national scandal. Yet again, corporate greed and very shaky indebted finances led to the taxpayer paying the price of directors’ failures. While those directors and shareholders reaped all the gains during the good times, the collapse of Thomas Cook more recently exposed these failings further, with the taxpayer once again footing the bill for failure. We had a conversation earlier about equity stakes, but the taxpayer in effect does have an equity stake in many businesses—but only in paying for the costs of failure, not in reaping any of the rewards of success. Ministers consulted on changes to insolvency law after these collapses, and some of these changes are in the Bill, but, inexplicably, other important ones are missing.

Over the coming months, as the recession takes hold and complex financial arrangements are pushed further towards breaking point by the new loans that these companies have, we are no doubt going to see the collapse of more household names and large corporates. Why have the Government not taken this opportunity, which we stand ready to support, to bring forward the long-awaited reforms on tackling bad corporate governance and protecting creditors, employees and, ultimately, the taxpayer? We also think it is a missed opportunity to have given the small business commissioner more powers and teeth, as the hon. Member for North East Bedfordshire (Richard Fuller) seemed to agree.

This is a speedy process for this Bill. It is a very large Bill, and we are expediting its passage through both Houses very speedily, so we are relying on Ministers to take on board some of the concerns raised today in the spirit of us working together. We will come back to some of these missed opportunities in Committee, but, to close, I urge the Minister to press his colleagues, including the Chancellor, to do more now to protect companies from insolvency. This Bill provides a small and important safety net and breathing space, but much more needs to be done and more quickly to prevent businesses from needing that breathing space in the first place. I hope that the Government will heed the warnings of business and provide further support so that the recession to come does not leave deep and lasting damage to our economy and employment.