Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Lord Callanan Excerpts

Wednesday 10th November 2021 Grand Committee

[Baroness Blake of Leeds (Lab)]

I start by thanking my noble friend Lord Lea for moving his Amendment 3. I know that we will have further discussions on the issues relating to it.

Like the noble Lord, Lord Fox, I do not want to go over the extensive debate that both noble Lords missed at Second Reading. The points made were so pertinent; I think most of us will have received extensive correspondence around the circumstances in which different creditors, in particular, find themselves.

I will limit my comments on my amendment to drawing together all the expressions of concern from the previous discussions about the lack of scrutiny. There is a real sense about a course of action being followed that enables people who should not be practising an opportunity to continue doing so in other ways. Most of all, I ask the Minister to look at whether we could establish an inquiry into unlawful behaviours relating to dissolved companies.

The other question that has come out of these discussions concerns the capacity of the different organisations. Can the Minister confirm what assessment he has made of the Valuation Office Agency’s capacity to deal with non-Covid-related material changes in circumstances? Continuing on the issue of resource, there is real concern about BEIS and the Insolvency Service. We recognise and welcome the requirement for the Secretary of State to report on the resources and powers available to the Secretary of State, BEIS and the Insolvency Service in relation to this Bill.

I understand that support staff at BEIS, represented by the PCS union, recently announced the possibility of strike action. They called for improved working conditions and an end to low pay. Does the Minister expect that further support staff will be required by BEIS in order to undertake the fulfilment of the new responsibilities?

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank all the speakers on this group. I will take the points made in turn, starting with Amendment 3 in the name of the noble Lord, Lord Lea. I get the impression that his amendment intends to expand the information that the court can consider when it hears an application for the disqualification of a former director of a dissolved company to include that person’s conduct in all other insolvent or dissolved companies. If that is the case, I am happy to assure the noble Lord that the court is already able to consider such evidence, whether through the report supporting the disqualification application or through the evidence submitted either in defence of the application or in mitigation by the defendant. It is also possible for the Secretary of State to introduce information provided by third parties, such as regulators, in support of a disqualification application. I hope that the noble Lord will concede that his amendment is unnecessary.

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[Lord Lea of Crondall (Non-Afl)]

My Lords, I thank the Minister for those responses. Before I withdraw the amendment, I would add that he dismissed a point I made without looking at the context in which I made it. The House of Commons Library briefing, Phoenix Trading and Liability of Directors, covers the starting up of

“a phoenix company following the liquidation of the original company”.

However, the briefing says:

“The Insolvency Service may also investigate a failed company (and the role of its directors) where there are concerns about either the trading practices of the company or the circumstances surrounding the failure of successive companies.”


The ability of the Insolvency Service to investigate

“the failure of successive companies”

in a liquidation scenario should, logically, be extended to investigations into successive dissolved companies. I am not quite sure whether the Minister responded to that point; maybe he would like to respond now.

[Lord Callanan (Con)]

I am happy to make it clear for the noble Lord again. The misconduct, or otherwise, of directors of previous companies can already be taken into consideration, and is in many ongoing cases. It can be considered by the court and the Secretary of State can submit further evidence, as can creditors themselves. I assure the noble Lord that evidence of previous misconduct or previous companies can always be taken into consideration.

[Lord Lea of Crondall (Non-Afl)]

On this problem of serial offending, as it were, and the limitation of the courts to look into it, I will take time to clarify exactly what issue has been reported. This will ensure there can be no misunderstanding on Report, where it will come out, as to where there is a problem at the moment, so that we are not talking at cross purposes.

This has been a useful opportunity to drill down into some of these matters. We will return to them on Report. I thank my noble friend for agreeing with me; we will both need to composite some of this material into a shorter amendment on Report. At the moment, I trust that the Minister and the department will reflect on the merits of what has been said. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Leigh of Hurley (Con)]

I rise to support Amendment 8, to which I have added my name, and thank the noble Lord, Lord Fox, and the noble Baroness, Lady Pinnock, for doing the hard work on the drafting. It is much appreciated. I am happy to support the amendment.

First, I disclose my interests as set out in the register, not least that I am a shareholder and chairman of Manolete Partners plc, which is an AIM-listed insolvency litigation firm. It does not exactly touch the Bill, but it is worth drawing your Lordships’ attention to it. Over many years, I have been a director of a large number of companies and other relevant organisations, one or two of which have become dormant and subsequently been dissolved—although, I hasten to add, with no loss of anyone else’s money.

I, too, thank R3 for its briefing and its perennial helpful guidance and advice. I apologise for not being present at Second Reading. As this Committee now knows, that was due to a last-minute change of date; I associate myself with the remarks made by the noble Lord, Lord Hunt of Kings Heath.

The Bill is sorely needed, and the Government’s proposals in respect of dissolved companies are very welcome. However, there has been much debate on the effectiveness of the measures proposed in Clause 2(6), which is what we are here to discuss this afternoon. I note that there was much debate on this subject in the other place. At that point, proposals were put down for new clauses that are broadly in line with this amendment, which is slightly different in its purpose from the amendment in the name of the noble Baroness, Lady Blake.

I think we all agree that the route proposed in the Bill is better than a criminal sanction because there is a lower burden of proof. On resources, which have been mentioned by a number of noble Lords, it is difficult to know what the numbers might be. It is worth noting that there are some 500,000 company dissolutions a year in the UK, of which some 5,000 might need investigation by the Insolvency Service. That figure of 5,000 has been out there for some time. The reason it has been quoted is that it is the number of companies that have been struck off and where a process has been started to put them back on the register, so we know that there are at least 5,000 companies a year that have gone back on the register. To do that costs a few thousand pounds, so many people are deterred from bothering to go to court to get companies put back on the register, with all that entails. There might in fact be many more cases worthy of investigation under the proposed new, simpler system, which we all welcome. This will be a big increase from the 1,200 cases a year, I think, that are currently investigated, hence the concern that this clause seeks to address.

In the other place, the Minister, Luke Hall, is not a BEIS Minister. That goes back to the poignant points made by my noble friend Lord Cormack that a hybrid Bill sometimes suffers from one Minister addressing parts of the Bill that do not centre on his or her expertise. We are extremely fortunate to be blessed with the great knowledge and experience of the BEIS Minister in front of us this afternoon. Mr Hall assured the other place in Committee that the Insolvency Service produces reports on its own activities, which is correct. However, these amendments would ensure that specific questions we would want answered are addressed in those reports, and with a degree of independence. I am not sure that a report by the Insolvency Service would be able to determine the points we made, as it is bound to be accused of a conflict of interest in opining on whether sufficient powers and resources are available to it. It would be nice to see an independent report laid before Parliament.

As the noble Lord, Lord Fox, said, the acid point we really need to be told is how much money is recovered from directors through this route for creditors other than HM Government. We would all be delighted to see them, through HMRC or any other agency, recoup all the proceeds they are owed, but will the Secretary of State continue to look with quite the same zeal as we know he or she will for government money when it comes to acting for other creditors? Perhaps the Minister will be able to set out—this afternoon or later—exactly how the Government intend to prosecute culpable directors and recoup the funds.

The Minister mentioned compensation orders as the route to recoup funds but, as I understand it, compensation orders can be used to benefit only one creditor, so can the Minister comment on how they will be widened to benefit other creditors? In addition to explaining how the compensation orders will be used, will the Minister set out whether dissolved companies with culpable directors will then be put through an insolvency process?

I hope this might be addressed on Report and a commitment made to look at how Companies House operates—particularly to consider some of the ideas raised during the passage of this Bill, such as not letting Companies House strike off a company until the Insolvency Service has had a good opportunity to look at the exact circumstances of it being struck off.

Finally—and I hope the Minister will allow me to raise this matter in this debate—I wonder whether he feels moved to comment at some point in Committee or later on some of the interesting issues raised by the noble Lord, Lord Sikka, at Second Reading. They were not addressed in our previous sitting, and I think there should be some opportunity, at the very least for a right of reply for the insolvency profession and others on some of the very serious accusations made at Second Reading. It would also be helpful if the Government could commit to set out their view on the insolvency profession and its regulation at some point.

[Lord Callanan (Con)]

I thank all noble Lords who contributed to what was a good short debate on Amendments 4, 5 and 8. I completely agree that it is very important that we closely monitor the effectiveness of the new legislation and make sure that our departments are adequately resourced to do the work asked of them.

I start with the amendment of the noble Baroness, Lady Blake, on the reporting of enforcement outcomes. I hope that she will be reassured to hear that there is a wealth of insolvency enforcement statistics. They are published regularly by the Insolvency Service and are readily available on this internet thing.

The published data includes figures for company insolvencies across the UK and personal insolvencies in England and Wales, as well as some of the data behind those figures, which the noble Baroness might be interested in, such as regional variations. Those statistical releases are made every three months, but, since the Covid pandemic started, experimental releases of monthly data concerning numbers of insolvencies have been provisionally added by the Insolvency Service. This additional information has been extremely valuable as an indicator of the impact of Covid on insolvencies. From my point of view, the number has been lower than I expected, which is good news.

Specifically regarding the Insolvency Service’s enforcement activities, information on numbers of disqualification orders is published and updated monthly. Those figures include the number of companies that are wound up in the public interest and a breakdown of disqualification orders and undertakings obtained under the relevant section of the Company Directors Disqualification Act under which they were sought. Those monthly figures also include lengths of periods of disqualification and, furthermore, there is an annual report on the nature of misconduct in disqualification allegations.

Perhaps the noble Baroness could have a look at all that published information and check that it is adequate for her requirements. I hope that this reassures her that, when she does the online search, she will find all the information she requires. There is a copious amount of excellent, helpful data. If the Bill is subsequently passed, future reports will include disqualification numbers made against former directors of dissolved companies.

The noble Lord, Lord Fox, made the very good point that it is important to see evidence of returns to creditors, but I make the important distinction that the disqualification mechanism is for deterring misconduct and protecting the public. It is not, in fact, intended primarily to be a method of recovering funds to creditors. However, he will be pleased to hear that compensation orders can be issued in respect of disqualified directors, who may be required to make good financially on the damage that they have caused, which I suspect is the outcome that we all looking for.

Both the noble Lord, Lord Fox, and the noble Baroness, Lady Blake, asked a good question about the numbers of additional staff. I assure them both that the point I made earlier applies: resources are not limitless, the Insolvency Service already has a team set up for this precise purpose, and a complaints portal is waiting to go live, although of course we will not activate it until the Bill is passed and given Royal Assent.

My noble friend Lord Leigh asked about the number of cases that have been referred to. If I may respectfully correct him, the number of cases investigated that he cited was actually the number of successful disqualifications. There will be many more cases investigated where it will have been determined that there was no public interest in proceeding. That is a difficult judgment that officials in the Insolvency Service and, ultimately, the Secretary of State will take.

My noble friend also asked about the regulation of insolvency practitioners. As I think he is aware, we are reviewing the regulatory framework that governs them to ensure that the best possible outcomes are achieved for creditors. He will be delighted to hear that we will publish the proposed reforms to the insolvency profession shortly, which I hope will go some way to assuaging his concerns.

I move on to the figures that we will publish and the impact assessment in terms of a post-disqualification review. Did the noble Lord want to intervene?

[Lord Fox (LD)]

I intervene given that the Minister is moving on. I specifically asked what tools would be available to deliver compensation. The Minister referred only to compensation orders; the noble Lord, Lord Leigh, made it clear that there are extreme limitations to those and if you talk to the professionals, they have a great deal of doubt about how effective they can be overall. Will the Minister either address that now or come back to us in letter form to explain how these compensation orders can be used to compensate people more widely or, if they cannot, what other options there are?

[Lord Callanan (Con)]

I outlined the issue of enforcement orders, but I am very happy to clarify any additional tools available to the Insolvency Service and to other agencies directly—though not connected to this Bill—to help recover funds both for public authorities and individual creditors. I will write to him about that.

As I said, we have already committed in the legislation to conduct a review into how it is working in practice. That will be done within five years of commencement of the legislation, in line with our better regulation requirement. It is too soon to determine exactly how that review will look, but it will likely be informed by overall case numbers and will include an assessment of whether the new powers are being used as intended.