Corporate Insolvency and Governance Bill

Lord Mendelsohn Excerpts

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

[Lord Mendelsohn (Lab) [V]]

I refer to my entry in the register of interests, particularly in restructuring and distressed investments. I welcome the introduction of the Bill, which recognises the extraordinary economic stress and uncertainty by tilting the balance towards restructuring and saving companies. I thank the Minister for his openness and engagement. I am happy to support the measures, especially those that are permanent as a step towards the UK having an insolvency regime that is not just to deal with the economic consequences of the pandemic, but is part of a global process of change started off by the financial crisis.

There is much to go through in Committee on the detailed provisions, so I will outline just a few issues and constructive suggestions that I hope the Minister will address to ensure that these reforms can work to their best and quickly in practice.

The changes to the creditor-in-possession system will be a tweak in a positive direction. However, debtor-in-possession financing is the most effective form of restructuring support as it incentivises existing share- holders, creditors or sponsors to put more cash in. If financing is dependent on new players, that adds a lot of complexity. Does the Minister plan to encourage debtor-in-possession finance through registration?

Do the monitors really have to be licensed insolvency practitioners? The skill sets are not the same. Will the Government consider a suitable threshold for qualified experienced accountants from other fields, even if on a temporary basis? That would certainly help to address the issues around conflicts, cost and availability.

Revenue and Customs as a preferential creditor could adversely affect the availability of funding, especially asset-backed lending, and have a major unintended impact on credit arrangements, unless we can see some clear view of how HMRC will operate. Indeed, under the new Crown preference system HMRC could use its voice to make sure that creditors get a fair deal from post-moratorium planning. Will HMRC publish anything on how it or even the Insolvency Service might work or skill up and operate under these provisions?

Pre-packs will become a more obvious way to game the system. Their exclusion is a charter for abuse. Even prior to the more general review, will the Government consider a simple amendment to make it compulsory for pre-packs to go to the currently voluntary pre-pack panel? The opportunities to game the system are inherent in the language of the moratorium. Will the Government consider that the comparator should not be “winding up”—that is, liquidation—but should be at least as good as “going concern administration”?

The moratorium freeze on payments works well for smaller companies but does not help larger employment-heavy companies as there is no say on bank debt, high-yield bonds or complex financing arrangements. These tend to be the issues that need most restructuring. Will this be dealt with by regulation?

The regulatory framework is not addressed but it is crucial to ensure that the system operates fairly, efficiently and effectively. Can the Minister please give some assurance on what guidance will be given to the judiciary on how to use this and to practitioners on how to use the courts, and on what will be published for us to see during the passage of the Bill?

The oversight of issues around late payment, the abuse of supply contracts and other areas that deal in particular with small businesses are not adequately protected, but they could be by use of the Small Business Commissioner. Will the Government bring forward such an amendment in Committee?

Regulation is required to make sure that potential conflicts and operations of monitors have the right robust system. We cannot really rely on the old cosy world of professional bodies. Can we receive assurances about how the obvious weaknesses in regulation will be plugged and what resources will be applied to it?

Lastly, will the Government include in their regulations provisions to bring in both the Pensions Regulator and the Pension Protection Fund at an earlier stage, to be able to participate and ensure that pension schemes are properly considered?