Corporate Insolvency and Governance Bill

Lord Flight Excerpts

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

[Lord Flight (Con)]

My Lords, I first draw attention to my entry in the register as chairman of Flight and Partners, which is a recovery fund.

The Government’s intentions for this Bill are well meant and are to help businesses survive. My concern is that its impact could be substantially contrarian and would damage, in particular, the SME sector. The Bill is being fast-tracked through Parliament with the consultation process being crammed into six weeks. Temporary measures in response to the crisis can be amended, but the worry is over the more complicated, permanent parts of this legislation.

The main measure is the new company moratorium, which gives a 20-day moratorium from anyone bringing an action and which can be extended by a further 20 days. We already have the notice of intention where directors can put down a notice of their intention to appoint an administrator. This needs the agreement of secured creditors and protects the company from any creditor issuing a winding-up provision. The NoI lasts for 14 days and can be extended. It has worked well in the SME space, the key being that it involves the secured creditor. The Bill’s moratorium procedure has no such requirement. While the bank’s security cannot be removed and it would have the legal right to enforce its security post the moratorium, to exclude the key stakeholder from the company’s strategic decisions is surely mistaken.

The impact of the Bill will be to increase the risk to lenders. Not allowing lenders any involvement in the moratorium will discourage lenders to this sector, where one of the reasons for their willingness to lend to date has been the ability to act quickly if borrowers are starting to breach covenants. There needs to be a carve-out for SME companies, perhaps using the EU definition of an SME: fewer than 250 employees, turnover less than €50 million and the balance sheet below €43 million. This would mean that banks could safely continue to lend to SMEs, knowing that the moratorium would be available only to larger companies. Without this, the Bill will have a major impact on lending to the SME sector at a time when it is most needed.

There is currently little wrong with the UK’s SME insolvency restructuring culture, and the comfort it gives to lenders delivers a vibrant lending culture. I am sure it was not intended that this legislation would damage this thriving part of our economy. It is invariably the case that more businesses fall into insolvency coming out of a recession than going into one, which is all the more relevant today with the enormous help provided by the Government.

The permanent changes to the moratorium and restructuring plan included in the Bill will stifle the ability to borrow in the SME sector and will result in more insolvencies. I urge the Government at least to consider the suggested carve-out for SMEs.