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.

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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.