Corporate Insolvency and Governance Bill

Lord Adonis Excerpts

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

[Lord Adonis (Lab)]

My Lords, I follow the noble Lord, Lord Wei, in spirit as well as in order, because of his significant concluding remarks on political economy about supporting companies that do not need to be forced into insolvency because they have fundamentally sound business models. I have a question for the Minister, leading on to a wider point.

My question, which shows that I am not an expert in company law, but which will become increasingly significant. particularly if the emergency measures are extended, is: in what order do the Government come as a creditor? My understanding is that where the Government take the form of HMRC as the taxman they are a preferential creditor under the provisions of the Finance Act. However, a lot of the Government’s priority for being repaid will come through coronavirus business interruption loans and other forms of financial support, which could conceivably include furlough support if that is continued into the medium term. I would welcome the Minister’s explanation of this, but my understanding is that where the Government come in the queues depends on what category of government support it is. If it takes the form of a coronavirus business interruption loan paid through a bank, they simply come in the order of the bank. There is no provision for the Government to get any recognition of the fact that they have possibly pumped huge sums into companies through, for example, furlough provision. I would welcome the Minister’s confirmation of that at the end.

However, the wider political economy point behind this is stark staring obvious. It is important that we stand back from the minutiae of company law. The fact of the matter is that in a lot of these companies the organisation that has put most money into the company, particularly in the recent past, will be Her Majesty’s Government, through furlough support, business interruption loans or possibly, if the Government chose to exercise discretion in the matter, their ability to reschedule or suspend payments due to HMRC.

The question that surely arises is: are the Government taking a strategic approach to their own role as a creditor across the various different forms of credit that they are providing to maximise the health of the economy? My understanding of the Bill is that that is not taking place at the moment. Understandably, we have a lot of very techy changes to insolvency and company law, essential for dealing with the immediate crisis we face in the next few weeks, but the point I make to the Minister is: would it be sensible for us to stand back from this and look, in a political economy sense, at the role the Government could play in sustaining the strength of the economy by pooling all the support they are providing to companies—those covered by the Bill with the Government as a creditor for loans, those covered by other legislation, such as the priority given to HMRC under the Finance Act, and those that do not appear to be covered at all, but which are hugely important, such as the furlough support—and for the Government themselves to take a view? That might well, for example, involve the Government taking stakes in companies as a means of sustaining them over the medium term, rather than forcing them, even if it is in a somewhat elongated provision, into insolvency.

That leads to the comment I would like to make. We have, of course, been here before; we are not reinventing the wheel in terms of very serious economic shocks. During one of the greatest shocks of the last century, the financial crisis of 1929 to 1931, John Maynard Keynes—maybe the greatest gift of this country to economic science in history, apart from Adam Smith—argued that the solution to dealing with the crisis faced then, with mass company insolvency in the 1930s, was not wholly in the public or the private sectors, but rather that the Government should

“experiment with all kinds of new sorts of partnership between the state and private enterprise. The solution lies neither with nationalisation nor with unregulated private competition; it lies in a variety of experiments, of attempts to get the best of both worlds.”

That is the position we face now. I would very much welcome some reassurance from the Government that they are looking at these wider political economy considerations.