Administration and Insolvency

Jo Swinson Excerpts

Wednesday 27th November 2013 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

I congratulate the hon. Member for Liverpool, Walton (Steve Rotheram) on securing the debate, and, if I may say so, on his rather fantastic contribution to Movember. As we are now nearing the end of the month, I implore him, perhaps on behalf of other hon. Members, not to get the razor out on Sunday so that we can continue to enjoy his fine moustache. What a fantastic cause to raise money for.

I recognise the interest that the hon. Gentleman has shown in insolvency issues, and in particular his concerns about the impact that insolvency has on local communities when jobs are unfortunately lost. He outlined particularly eloquently the human cost that is paid by those involved in such businesses when they unfortunately enter insolvency. This is especially keenly felt in the run-up to Christmas. In the example he talked about, Trigon Snacks, those 64 individuals are in a very difficult situation, having, sadly, lost their jobs. I extend my full sympathies to those individuals and their families.

I recognise the efforts and discussions that the hon. Gentleman has had with the administrators and the union in this case. He was right to highlight the positive role that unions can play in such situations. It is all too easy for unions to be demonised in industrial relations, with headlines that tend to focus on circumstances where industrial relations break down and are negative, whereas the day-to-day experience is often of a much more positive and constructive working relationship, helping to create future success for a business that is going through difficulty. Although clearly for the 64 individuals who have lost their jobs there is a heavy price to pay, it is worth noting the success of at least making sure that 110 of those 174 jobs have been saved as a result of the business being sold as a going concern. The input of dedicated constituency Members of Parliament in such cases is not to be underestimated and is cause for congratulation.

I understand the hon. Gentleman’s concerns about some of the practices surrounding administration, and I will try to set out what the Government are doing to address some of them. He said that the social consequences should be explicitly recognised in the objectives of administrators, and he rightly highlighted concerns where it is the case, or sometimes the perception, that a company is asset-stripped and sold off to the highest bidder without any apparent concern for the wider consequences.

I would like to provide reassurance by going through the hierarchy of objectives for administrators. The top priority that they have to bear in mind is business rescue—to rescue a financially troubled company as a going concern. That is well aligned with the wider social objectives that the hon. Gentleman seeks to promote, including the interests of employees and other stakeholders. Generally, the best way of making sure that creditors can be paid and jobs can be saved is to ensure that the business can continue as a going concern. If that is not possible, the administrator is required to achieve a better result for the creditors of the company as a whole than would be achieved in an immediate winding-up. Only if neither of those things is possible is it their duty to realise the property and the assets for the benefit of the secured or preferential creditors. We have a system that places priority on business rescue, which is incredibly important and ultimately the best way to secure the jobs of the individuals who are working for a company.

Regrettably, to have a chance of rescuing a failed company, urgent and robust action sometimes needs to be taken to restructure and to reduce costs. That does not necessarily mean that it is the fault of the administration procedure per se; it may be a reflection of the economic reality of a company that cannot meet its obligations. Thankfully, the number of administrations and liquidations has been on a downward trend in recent years. In the 12 months that ended in the third quarter of this year, there were 2,303 administrations, which is about 300 fewer than in the previous 12 months, and the number of liquidations was about 8% lower over the same period.

The hon. Gentleman and the hon. Member for Sefton Central (Bill Esterson) asked about the behaviour of the banks. This is not only about what happens when an administration procedure is reached but what we can do to prevent businesses from getting into this situation in the first place. The hon. Gentleman outlined the scenario of Trigon Snacks, where so much stemmed from the declining of a request for a loan. I am sure he will understand that I cannot necessarily comment on the specifics of that loan application, but this is an issue on which we share some general concerns. In fact, this week the BIS entrepreneur-in-residence, Lawrence Tomlinson, published a report in which my right hon. Friend the Secretary of State has taken a great interest and has referred to the Financial Conduct Authority and the Prudential Regulation Authority, which looks at the role of banks particularly in relation to the support they give to business. The report focuses on significant concerns about the conduct of the Royal Bank of Scotland. We are looking carefully at the evidence in the report to see whether further issues need to be raised within the regulatory bodies regarding insolvency practitioners and whether any legislative framework issues need to be addressed in relation to the behaviour of banks.

Generally speaking, our insolvency regime is highly regarded internationally. A recent World Bank report rated it seventh—above those of the US, Germany and France—on resolving insolvency. That is partly a reflection of the flexibility of our regime for prioritising business rescue, which helps to preserve value and jobs. That focus, rather than any specific obligation to consider particular affected parties over others, helps to balance everyone’s interests and to create a better business environment, which improves the prospects for preserving these jobs in the long term. However, I absolutely recognise the concerns that the hon. Gentleman raises about this case and others.

Let me turn briefly to some of the other issues raised about insolvency. On the effectiveness of the regulatory regime, we believe that stronger oversight powers would help to improve confidence in it. We will therefore introduce proposals, when we can find time in the legislative programme, to strengthen the powers of the Secretary of State as oversight regulator.

Concerns have been expressed about the pre-pack administration process, particularly where there are sales back to connected parties. In the light of these concerns, I announced in July that Teresa Graham had been appointed to undertake an independent review of the pre-pack procedure, which we expect to be completed by the spring next year. There have also been changes to introduce a revised practice standard for pre-packs, known as SIP16, which is now in place. The complaints mechanism has been streamlined, with a new single complaints gateway to help to make the complex array of regulatory bodies easier to complain about.

The issue of fees charged by insolvency practitioners has been raised. Professor Elaine Kempson recently provided a review of fees that was published earlier this year, and we intend to make an announcement on the way forward in due course.

The hon. Gentleman said that in recent years significant progress has been made on insolvency to improve the situation. I hope that he is reassured that this Government are very aware of the issues he raises and are taking action on a number of fronts to make further progress in various areas to ensure that all insolvency procedures can deliver the best possible outcomes in difficult circumstances—