Corporate Insolvency and Governance Bill

Lord Hendy Excerpts

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

[Lord Hendy (Lab) [V]]

My Lords, preserving companies in financial difficulties as going concerns is laudable. The workers of such companies will welcome measures that keep at bay corporate predators intent on stripping a company’s assets, thus destroying jobs. But the Bill does not eliminate the dangers to workers. Indeed, it contains no specific provisions to protect workers. Let me amplify some omissions which have been touched on by my noble friend Lord Stevenson and others.

Most fundamental is the absence of any obligation that workers and their representatives be involved in proposals for a moratorium or a restructuring—proposals likely to affect them profoundly. The Companies Act 2006 requires directors to take into account the interests of the workers, but they are not obliged to ask the workers for their views. We know that directors commonly ignore workers’ interests when a company is in financial difficulty. Often, the workers first learn that the company has gone bust on TV—well after all key decisions have been taken. The 1992 trade union Act requires consultation before redundancy, but we know that too often that does not happen, even where administrators have been appointed. It is cheaper to pay compensation than to keep the company going while consultation takes place. In the Woolworths administration, £67.8 million was paid out in compensation for failure to consult; at Comet, it was £26 million.

Another point is that those payments were not made by the companies, the directors or the administrators. They were made by the taxpayer, under legislation that requires the National Insurance Fund to pay some awards, unpaid wages and pension contributions. The burden is shifted to the taxpayer because the workers’ claims are insufficiently protected by insolvency law. It is true that the Insolvency Act 1986 confers preferred creditor status on employees in respect of some unpaid awards, wages and pension contributions. Preferred creditor status sounds good, but it ranks behind all secured creditors, including, often, the shareholders themselves, where private equity is invested by way of secured loans rather than share purchase. After the secured creditors have been paid out, often there is not enough to go around the preferred creditors. In the case of Bernard Matthews, the pension fund recovered next to nothing, while the secured creditors were paid in full. Debts owed to workers outside preferred creditor status rank at the bottom, with all other unsecured creditors. Since the company is, by definition, in financial difficulty, usually there is not enough for them. What is required is to make the benefits of this Bill contingent on the company fulfilling its obligations to their workers first. Noble friends and I will table amendments to achieve this if the Government do not.