Corporate Insolvency and Governance Bill

Lord Lennie Excerpts

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

[Lord Lennie (Lab) [V]]

My Lords, I begin by thanking everybody who has spoken in this important debate today, and the Minister for the briefings, meetings and information that he has provided on the Bill—it has been very helpful. It has been good to hear so many contributions concentrate on the vital matter of how the Government can produce a framework to support businesses and give them the best fighting chance of succeeding, rather than falling prey to insolvency.

I would like to draw particular attention to the speeches on pensions and pensions governance, by my noble friends Lady Drake and Lady Warwick; on workers’ rights, by my noble friends Lord Hendy and Lord Hain; and on encouraging entrepreneurs in the future, by my noble friend Lord Blunkett. I reassure my noble friend Lord Liddle that the Labour Party is no longer interested in replacing capitalism; sustained capitalism is here to stay, I assure him. I also draw attention to the speech of my noble friend Lord Stevenson, who introduced, with understanding, comprehension and intellect, the range of concerns that we have with the Bill and its shortcomings.

In this brief contribution, I will summarise where the Labour Party feels that the Bill could, and should, do more, and indicate where we will table key amendments in Committee. Faced with the most dramatic recession for centuries, we must do all that we can to save as many viable businesses as possible from going under. This will help make the recession less deep and the recovery less difficult.

The Resolution Foundation estimates that up to 7 million people—workers—will face unemployment if the coronavirus pandemic lasts for up to 12 months; already we are at three months. A second wave of support for businesses will be essential if we are to prevent avoidable future closures and mass redundancies. Already, there have been redundancies of 500 jobs at Aston Martin; 1,500 jobs at Lookers; 3,000 jobs at the Restaurant Group; and, as of yesterday, 10,000 jobs worldwide at BP. Surely that must concentrate the mind of the Government to do more, and more quickly, to provide additional help for the sectors that will take longer to recover, such as hospitality, tourism and the arts. We need a recovery plan to take us out of recession.

Having forced the closure of many businesses, it is right that the Government should do all that they can to support these businesses in their rescue and recovery phases. The Government must act quickly. Where the Bill proposes measures that help to reduce insolvency, we will of course support it. Where it needs improvement, particularly to support the less powerful, we will seek to amend it.

On a permanent basis, we think it is right to give breathing space to firms; preventing suppliers from sending businesses into early liquidation is the right thing to do. On the temporary measures, it makes good sense to remove the threat around winding-up orders, and the suspension of personal liability for wrongful trading makes sense on a strictly time-limited basis. Easing the requirements for company filing deadlines and AGMs is also sensible.

The length of time that measures need to be in place is, however, open to question, as my noble friend Lord Stevenson and the noble Lord, Lord Fox, have said. Does anyone believe that extending deadlines until 30 June, or 30 days after the Bill is passed, will really be long enough?

Preventing hostile action against businesses during this time will be essential, until they have enough opportunity to prove their continued viability. Surely the Government, like the rest of us, know that this will take beyond 30 June or 30 days after the Bill is passed. The end of September might make more sense as an initial deadline. Some believe—indeed, some Tories believe—that the end of the year would be a better deadline than that. Many businesses will not even have reopened on 30 June—hospitality, entertainment, restaurants and pubs, to name but a few. How can they hope to be persuaded of their continued viability 30 days thereafter?

The rights of workers are absent from the Government’s proposals. As has been made clear by the noble Baronesses, Lady Drake and Lady Warwick, when a company is drafting an RP, surely it makes sense to consult its most valuable asset—its workforce. The legal underpinning of this would prevent the kind of hostility that there currently is at British Airways. Rather than keeping the workforce uncertain and cast in the role of reacting to the proposal, as their jobs and futures are at stake, surely they should have the legal right to consultation and to have their voices heard, as a contribution to restructuring plans.

The treatment of pension funds is curious. I am grateful to the Pensions and Lifetime Savings Association for highlighting this problem. Defined benefit provision schemes, as unsecured creditors, will likely lose out to banks and other financial arrangements, as secured creditors, thereby ranking pension funds below the bankers. In the event of insolvency, by the time the secured creditors have been paid out, there is unlikely to be anything left to pay pension fund contributions. Why do the Government not propose to treat them as priority creditors? Pensions are deferred earnings and their value should not be put at risk by this legislation.

As to the future, the Government should have a credible plan about how they will support the green new deal. Will they put in place new apprenticeships that will support the insulation of our homes, the design and building of electric cars, and the building of new forestry areas—major projects designed to help our economic recovery? If nothing else, this crisis has shown that only government can will the resources to steer companies out of a deep economic recession.

The Labour Opposition support the Government in these measures in so far as they go, although this is a long and complicated piece of legislation, but we have concerns about the limitations of, and other absences from, the Bill. We will table amendments to this effect in Committee. In the meantime, we look forward to hearing the Minister’s response.

Corporate Insolvency and Governance Bill

Lord Lennie Excerpts

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Tuesday 16th June 2020 Lords Chamber

[Lord Lennie (Lab) [V]]

My Lords, I had rather thought that the Minister would speak at the beginning of this debate, as that might have obviated some of the discussion that we have had to have; he has not yet fulfilled what the Report stage amendments will be, based on the letter that he produced last night. There seem to be shared concerns among all speakers about the relative position of debt—finance debt, pension debt—and the weakness of the PPF. Does it or does it not have a seat on the discussion body? Would that be at the beginning of the discussions or, as someone put it, just a cc or copying in of the PPF into the information? Will the risk of gaming through acceleration of a company into insolvency by those who seek to gain from that position be guarded against? And so on.

At this stage, we should at least thank the Minister for his reconsideration in advance of signalling that there will be moves at Report stage. Whether they will be sufficient moves we will have to wait and see. This may not be the last word on these matters, but it may go some way towards putting in place a sensible, if not ideal, position for the PPF and the defined benefit pension scheme trustees, in the event of insolvency moratorium or restructuring plans. It is not yet clear how far he is prepared to go and it is a complex issue, as we have heard from all the speakers.

Secondly, I want to express my huge appreciation and admiration for the noble Baronesses, Lady Drake and Lady Warwick, from the Labour Benches, assisted by the noble Baroness, Lady Altmann, and the noble Lord, Lord Balfe, from the Conservatives, in their pursuit of this matter. It is hugely important to everyone that we get this right. The 2004 protection fund legislation was profound, important and lasting. It should not be put at risk by what we are attempting to do in response to the Covid crisis, whether on a temporary or permanent basis. They deserve our thanks and praise for the thorough way in which they have conducted themselves. There is much more to come but, for now, we will have to await the amendments and judge on Report whether those intentions have been fulfilled.

Finally, I urge the Minister in the meantime to take up the offer of discussions made by the noble Baronesses, Lady Drake and Lady Warwick, in advance of Report stage, to see if they can iron out any creases that there may be in what he may propose.

[Lord Callanan]

I thank all noble Lords for tabling amendments on this important topic. I first clarify to the noble Lord, Lord Lennie, and others that I thought it would be helpful to email noble Lords last night to inform them of my intention to table an amendment on Report because, under the new procedures, I was not able to stand up at the start of this grouping to tell people in advance. I thought it would be helpful to give people advance notice of this to stop them asking for all the things that we were going to do anyway. I thought that it might have played some part in curtailing the debate on this.

I start by reminding the House that both the moratorium and the restructuring plan are not insolvency events—they are company rescue procedures. Where the company itself can be saved as a going concern, obviously, the returns to all creditors and stakeholders of the company will be better.

I turn specifically to Amendment 20 for Great Britain, tabled by the noble Baroness, Lady Drake, and others, and Amendment 39 for Northern Ireland. I do understand the intentions behind these amendments. However, removing financial services contracts from the list of liabilities for which a company does not have a payment holiday when it enters a moratorium would mean that the company does not have to pay these liabilities during the moratorium.

The purpose of excluding these contracts from the payment holiday is to ensure that the moratorium does not affect existing financial services legislation or the operation of the financial markets, and that financial markets participants continue to have legal certainty to facilitate the efficient functioning of those markets. Not excluding them could have potentially severe consequences for the operation of the markets and, in turn, the stability of the financial system and the availability and cost of these products.

In addition, it is important to recognise that financial services firms are a key part of making the moratorium provisions work. Critically, they are not excluded from the moratorium, as I said on the last grouping, where they are a creditor to a company in distress so that they continue to support those companies. It is recognised that not excluding financial services contracts from the payment holiday definition could remove the incentive for these firms to continue to provide finance. That could leave companies in financial difficulty in a far worse-off position than they would otherwise be.

I understand the purpose of these amendments, and the concerns that many noble Lords raised during this debate and at Second Reading on the super-priority of financial services debts in the moratorium. In discussions with the various stakeholders, it has become clear that unpaid financial services debts that have been accelerated for payment during the moratorium receive this super-priority status. We would not want this to provide an incentive for financial services firms to jeopardise the rescue of businesses during a moratorium by accelerating financial services contracts for payment, so as to benefit from this super-priority of their debt in a subsequent insolvency. I will therefore table an amendment on Report to address this issue, and I thank noble Lords who have raised it with me.

I turn to Amendments 27, 63, 64 and 118. Again, I understand the intentions of these proposals. We can all agree that recent high-profile insolvency cases that featured large deficits owed to the defined benefit pension scheme were worrying. We all recognise the uncertainty that this brings for employees, both past and present, in such cases. Again, I assure the Committee that the Government recognise the need for safeguards around these pension schemes and have been working closely with key stakeholders over the last few weeks on these issues. We have reflected on the concerns raised, so I confirm that it is our intention to table amendments on Report to ensure a greater role for the Pension Protection Fund and that pension protection is made clear in the Bill. Again, I am grateful to noble Lords for their engagement on this issue. Both the amendments that I have mentioned will be tabled tomorrow to give noble Lords the opportunity to study them in advance of Report.

Let me address some of the points made. Initially, the noble Baroness, Lady Drake, and I think the noble Lord, Lord Fox, asked—he may not have done so—whether pension schemes can be crammed down. The protections that apply generally will cover a pension scheme included in a restructuring plan proposal. There are strong protections, including a high threshold for class support of 75%, and where cross-class cram down is requested and none of the members of a dissenting class are worse off than they would have been under the next most likely outcome. Importantly, even if all the statutory requirements are met, the court can refuse to sanction a restructuring plan if it is fair and equitable for it so to do.

My noble friend Lady Altmann and, on this occasion, the noble Lord, Lord Fox, asked about the debt priority of pensions and whether the current ranking is appropriate. When insolvency occurs, there is a balance to be struck in considering the order in which those owed money are paid out of the available assets. There are seldom enough funds to pay all creditors in full in an insolvency. To ensure fairness, the law requires that available funds be distributed in a certain order. Unsecured creditors are paid once the secured creditors and preferential debts, which of course include employees’ hard-earned wages and salary, have been dealt with; they share the funds that are then left over. Any deficit owed to a pension scheme ranks alongside all other unsecured creditors, which will inevitably include trade suppliers, some of which will be small and micro companies. I confirm to the noble Lord that this legislation has not changed the existing provision and that it carries on.

With those explanations, and with the notice I have given of the proposed government amendments on Report, I hope that I have provided sufficient justification for the noble Baroness to withdraw her amendment.

--- Later in debate ---

The rest of the amendments I would normally have quite a lot to say on, because I am extremely interested in the balance of corporate governance, other stakeholders and the inclusion of workers on boards. But it is just not possible in this short time to do justice to them, though many are extremely worthy. Again, it is a huge disappointment that the Government should have accelerated some permanent measures and seem to have neglected many others.

[Lord Lennie [V]]

I thank my noble friends Lord Hendy, Lord Hain and Lord Monks for bringing forward their amendments on this part of the Bill. Given the constraints on time, I ask the Minister whether the Government intend to bring forward further legislation on this matter. Does this have to be dealt with now, or can it wait for further legislation?

[Baroness Bloomfield of Hinton Waldrist]

My Lords, these are important amendments, which deserve a proper response. The Government agree with much of the sentiment behind some of the amendments, and so I hope noble Lords will forgive me if I commit to write to them with a proper response tomorrow. Clearly, the Government are not able to accept the amendment, and I hope that the noble Lord will therefore withdraw it.

Corporate Insolvency and Governance Bill

Lord Lennie Excerpts

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 23rd June 2020 Lords Chamber

[Lord Fox]

My Lords, I am grateful to all noble Lords who have spoken in this important debate. I am a signatory to Amendment 15 and I thank my noble friend Lady Bowles, the noble Baroness, Lady Altmann, and the noble Lord, Lord Hain, for co-signing it. I join other Peers in acknowledging that the Government have moved in terms of listening to the previous debate and going forward, but the issue that Amendment 15 seeks to address is a serious one. If this Bill went through without the sorts of assurances that we are looking for from the Minister, or remained unamended, that would create a huge issue for pension trustees all over the country. Never mind the ones that are going into insolvency—as the noble Lord, Lord Balfe, set out so eloquently, every single pension trustee would revisit every single pledged asset and would go back to the management of their sponsoring companies to ask for cash instead. I do not need to remind the Minister that cash flow is one of the biggest challenges facing businesses at the moment; it is actually cash that is the problem. To knowingly put in a measure that will drain profitable businesses of cash would be careless, and I do not think that that is what the Government are doing. I think this is an unknowing consequence of the Bill.

To be clear, this concerns assets that have already been pledged. When the Minister spoke earlier, he seemed to be referring to assets being pledged at the time of insolvency, but these are assets which have been pledged in lieu of cash. Given that, I am a little bemused by the idea put forward by the noble Baroness, Lady Neville-Rolfe, that the Pension Protection Fund would somehow be overreaching itself in seeking to protect these funds for pensioners and that it would be giving the PPF too much power. Rather, it is merely the power to protect assets that have been signed over to the pension fund. If they were not assets such as those set out by the noble Baroness, Lady Altmann—real estate and securities—then it would be money. I do not think that the noble Baroness, Lady Neville-Rolfe, is proposing that the courts should have the power to extract money from pension funds, so why should they not have the power to protect against judges extracting assets that have been put aside in lieu of money?

The noble Baroness, Lady Altmann, put a clear question to the Minister, one that I think is very apposite to this point. Does the PPF have the power to prevent judges extracting pledged assets from pension funds and putting them into the pool of assets for distribution to other creditors? If the Minister is able to stand up and say that clearly and unambiguously—for those Members watching remotely, it does not look like he is—there is no problem. However, if the Bill leaves this House unamended or without that pledge, this issue will become a very serious one not just for the pension funds of distressed companies but for every defined benefit pension fund in the country.

[Lord Lennie (Lab) [V]]

My Lords, straight off the bat, I too welcome the Government’s movement on this specific part of this necessary Bill. There will be a sense of relief for direct benefit pension funds and their trustees, the Pension Protection Fund and the regulator. As has been said, all will now have rights of access to information about the intentions of companies and to voice their opinions about the decisions that are being contemplated; a seat at the table, access to court and so forth. This will be true throughout the UK.

When a company seeks a moratorium or when it considers other actions in a potential redundancy and insolvency circumstance, the monitor will be required to notify the pension scheme, the PPF and the regulator to have due consideration of their views about the proposed action. In the event that a moratorium comes to an end or if the monitor changes, the pension scheme trustees and the PPF must be informed. This will mean in effect that the debts owing to a direct benefit pension scheme do not rank below other finance debts. That would recognise the real status of a pension as deferred earnings and should not allow others to accelerate the debt position at the expense of pension provision, as was feared in the original text. These changes have come about due to the strength of the arguments put by my noble friends Lady Drake and Lady Warwick, the noble Baroness, Lady Bowles, on the Liberal Democrat Benches, and the noble Lord, Lord Balfe, and the noble Baroness, Lady Altmann, on the Conservative side. I congratulate them on achieving this much.

However, can the Minister provide the reassurance being sought about the value of direct benefit schemes being put at risk by the sale of assets, and ultimately the whole working of the PPF? Will he closely monitor and consult on any necessary remedial actions that may arise from his examination of this issue? The Minister can take the credit due to him for his part in bringing forward these amendments to the Bill, and they are welcome. But can he confirm that the Government will stay alert and ready to intervene on behalf of pensions and the PPF in the event that the measures in this legislation do not go far enough in protecting them?

[Lord Callanan]

My Lords, I take this opportunity to thank everyone who has spoken in this important debate, and I am grateful for Amendment 15 because it is a very important provision. I am also grateful to noble Lords for their continuing efforts to ensure that pensions are treated appropriately through this Bill. None the less, I hope that they will agree that we are now seeking to introduce specific and satisfactory provisions to deal with pensions’ interests.

I also take this opportunity to assure noble Lords that where charged property is disposed of, it can be done only with the permission of the court and where the court believes that it is necessary to support the rescue. Where the court is satisfied and gives its permission, the net proceeds must go towards satisfying the amounts secured by the charge before they can be used in any other way. From a practical perspective, this amendment is not necessary. If a company in a moratorium was going to court to seek permission to dispose of charged assets, it would at the least have had to have had a conversation with the person to whom those assets are charged. Well before giving clearance to the company to dispose of such assets, the court will of course take account of their views at the hearing.

In response to my noble friend Lady Altmann and the noble Lord, Lord Hain, we have been in detailed discussions with colleagues in the DWP, along with both the Pensions Regulator and the Pension Protection Fund, in the formulation of these amendments. We are seeking to ensure that the PPF is able to play a role in a company’s rescue plan where it is appropriate for it to do so. Let me also provide the assurance that the noble Lord, Lord Lennie, was looking for. Of course, we will continue to monitor these arrangements to ensure that they act in the fairest possible way for all the different stakeholders in the process that I referred to earlier.

On that basis, I hope that I have been able to provide sufficient reassurance to noble Lords and that they will feel able to not move their amendments when the time comes. I beg to move.