Corporate Insolvency and Governance Bill

Lord Hain Excerpts

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

[Lord Hain (Lab) [V]]

My Lords, with half a million businesses at risk of going under this year because of the Covid-19 crisis, the need for this Bill to try to provide new options for company rescue will be accepted across the House. However, there is a risk of pushing this problem off to tomorrow. There should, for example, be a second wave of support for viable businesses threatened through no fault of their own. Although there will be a further cost to the Treasury, it will be far less than the cost of doing nothing.

There should also be greater protection for consumers where businesses go bust, to protect and strengthen consumer rights, particularly given the terrible impact of the crisis on the travel, hospitality and retail sectors. It is crucial that distressed companies conserve their cash flow to improve their chances of survival, rather than squander it on high dividends, share buy-backs or executive bonus payments. There is scope further to strengthen the protections of the moratorium by providing a payment holiday on loans and by broadening the scope of eligible companies.

On the new restructuring plan, the proposed threshold requiring the support of 75% by value of the members of a class is in line neither with the Chapter 11 plan of reorganisation nor with the new Dutch plan. The proposed higher threshold could enable a small minority of the members of the class to stymie the wishes of the majority. Changing this threshold would facilitate restructurings and ensure that the new restructuring plan was best placed to maximise value for stakeholders.

On the restrictions on winding-up petitions, the protection for debtors is far reaching and there needs to be a presumption in favour of the creditor’s position where the company has failed to engage in good faith with reasonable requests for relevant information. This is necessary to ensure that supply chains do not collapse due to debtors abusing their position and not paying creditors, leading to creditors themselves becoming debtors in a downward spiral to financial disaster.

The Government are right to amend the rules to help businesses showing signs of financial distress to survive through the crisis, but they must not do so by removing essential protections for creditors and employees. The Government should introduce further protections for smaller unsecured creditors, who are often employees and smaller SMEs, including through the ring-fencing for them of proceeds of the sale of assets.

I will be joining my noble friend Lord Hendy, who spoke so powerfully earlier, my noble friend Lord Monks and others to move amendments in Committee next week to put in place protections for employees over their pension rights, on which my noble friends Lady Drake and Lady Warwick spoke in ominous but authoritative terms, as well as protections on pay and national insurance contributions, and on gender balance compliance with the Equality Act 2010. But the catastrophic hit on manufacturing—including flagship companies such as Rolls-Royce, Airbus and Jaguar Land Rover—has again starkly exposed the Government’s complete lack of any serious or active industrial policy. Britain’s smaller businesses need a source of modest equity capital and long-term lending, like the KfW in Germany and the Small Business Administration in the United States. Now is the time to plug that gap.