Corporate Insolvency and Governance Bill

Lord Vaux of Harrowden Excerpts

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

[Lord Vaux of Harrowden (CB) [V]]

My Lords, I declare my interest as a chartered accountant. I start by associating myself with the comments of the noble Lord, Lord Hodgson of Astley Abbotts, and other noble Lords about the rushed nature of this Bill. This would be appropriate if it contained only emergency measures, but the Bill introduces important and permanent changes, and the number of amendments we are discussing today rather demonstrates that concern. I thank the noble Baroness, Lady Meacher, for her support for my Amendment 51 to Clause 12. It is to be debated in a later group so I shall speak to it then, but I am grateful to her.

I want to add my support to a number of amendments in this group, and I apologise for having missed the deadline to add my name to them. It is a rather diverse group, so I shall try to sub-group my comments by subject area. I turn first to Amendment 2, in the name of the noble Lord, Lord Stevenson of Balmacara, and Amendment 42, in the name of the noble Lord, Lord Hodgson of Astley Abbotts. Amendment 2 simply makes independence a qualification of the monitor, while Amendment 42 says that the monitor “must satisfy himself” that he is

“free of conflicts of interest”.

These really should go without saying.

The Government seem to be arguing that because insolvency practitioners are professionals, they will do this anyway. I confess that I have a healthy scepticism about the insolvency industry, which has a substantial ambulance-chasing component to it. Conflicts are common- place, and we have been given some good examples by the noble Lord, Lord Hodgson, and the noble Lord, Lord Leigh of Hurley. Making independence a legal requirement in the Bill would seem to be an extremely good thing, and it is hard to see any downside to that.

Secondly, I add my support to Amendment 4, proposed by my noble and learned friend Lord Hope of Craighead. This would simply add a list of creditors to the list of relevant documents that must be provided to the court when applying for a moratorium. This would be a simple and practical way of assisting the monitor to do his job, and in particular, to notify the creditors without delay. It is hard to see any downside to this and really it should be accepted.

Finally, I support Amendment 21, in the name of the noble Lord, Lord Hodgson, and Amendments 25 and 40, in the name of the noble Baroness, Lady Bowles of Berkhamsted. The amendments seek to prevent banks gaming the process by changing the terms of payments and costs during the term of the moratorium. It must make sense to ensure that banks, which will have all the negotiating strength in these situations, are not able to give themselves preferential terms, and so I urge the Minister to consider this matter seriously.

[Lord Adonis (Lab) [V]]

My Lords, I thought that the noble Lord, Lord Hodgson, made two very powerful remarks earlier in the debate when he said that this Bill seeks to do two separate things. The first is to introduce the emergency provisions in respect of the crisis we are in, and the second is making permanent changes to insolvency law. He also drew attention to the absolutely devastating report on the Bill by the Delegated Powers and Regulatory Reform Committee, which highlights a wider set of Henry VIII clauses than I have ever seen in a Bill of this kind, including the whole definition of which companies are affected by it under new Schedule ZA1, which can be changed by the Government by order, without any primary legislation. I am sure that we will want to return to that.

Even more extraordinary is the Government’s justification for why they have included all these Henry VIII powers, which is

“the undesirability of taking up Parliament’s time unnecessarily.”

Surely it is the job of Parliament to decide whether its time is being taken up unnecessarily, not that of the Government. I draw the particular attention of the Committee to paragraph 8 of the Delegated Powers and Regulatory Reform Committee report, which states:

“In our view, the presumption should be that where something needs changing which Parliament has enacted, Parliament should enact the changes by primary legislation rather than ministers make the changes by secondary legislation.”


That points the way to a number of key amendments that need to be made on Report.

Turning to this group of amendments, it suffers from exactly the same problem that the noble Lord, Lord Hodgson, said the Bill suffers from, which is that it puts together a whole lot of separate things that do not actually go together. Over the past hour and a half, we have debated three completely separate matters: the issue of the independence of the monitor, which is hugely important—my noble friend Lord Stevenson’s amendments in that regard are utterly compelling—along with the issue of wider conflicts of interest in the whole handling of the moratorium arrangements and the people who play a part in them, which again is a wider and separate issue. The third issue, which has been covered comprehensively by my noble friends Lord Hendy and Lord Hain, is the hugely important matter of consultation with the workforce and the priority to be given to employees and workers in these moratorium arrangements and anything that might follow from them. I hope that in his reply, the Minister will be able to pay substantial attention to all three of these areas.

I do not want to go over ground that has already been covered by my noble friends, but I would like to ask the Minister one specific question. In the early stages of the coronavirus crisis, the Government made great virtue of the fact that they were consulting employee organisations, trade unions and the TUC in order to create a consensus on the kinds of measures which would be needed to deal with it. Indeed, in the construction of the furlough scheme, the Chancellor of the Exchequer made great play of the fact that he had been talking to the general secretary of the TUC, Frances O’Grady. It is quite clear that there are concerns among trade unions about the whole way that these provisions will cut across established insolvency provisions and redundancy provisions. Therefore, I want to ask the Minister a specific question—or rather, two related questions.

First, what representations have been made to the Government about the role of employees and their interests in this Bill? Secondly, can he tell us whether he personally or any of his ministerial colleagues have met the TUC general secretary or officials from the TUC to discuss these provisions? I ask that because if we are seeking to proceed by consensus, by the time we get to Report, we will want to know what actual discussions have taken place with representatives of employees and whether we can satisfy ourselves that there has been adequate consultation. If not, the arguments made by my noble friends Lord Hain and Lord Hendy are compelling when it comes to amendments that we will need to make on Report.

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Moved by

[Lord Vaux of Harrowden]

51: Clause 12, page 67, line 17, at end insert—
“(7A) This section does not apply in relation to a contract for the supply of goods or services to a company where the supplier is not in its first financial year at the relevant time and meets at least two of the following conditions in the most recent financial year--Condition 1: the supplier’s turnover was not more than £5.1 million;Condition 2: the supplier’s balance sheet total was not more than £2.5 million;Condition 3: the number of the supplier’s employees was not more than 25.(7B) For the purposes of Condition 1 in subsection (7A), if the supplier’s most recent financial year was not 12 months, the maximum figure for turnover must be proportionately adjusted.(7C) For the purposes of Condition 2 in subsection (7A), the supplier’s balance sheet total means the aggregate of the amounts shown as assets in the supplier’s balance sheet.(7D) For the purposes of Condition 3 in subsection (7A), the number of employees is the number of employees at the most recent financial year end.(7E) In subsections (7A) to (7D), the supplier’s “most recent financial year” is the financial year of the supplier which, at the relevant time, has ended most recently.(7F) This section does not apply in relation to a contract for the supply of goods or services to a company where the supplier is in its first financial year at the relevant time, if the supplier’s average turnover for each complete month in the supplier’s first financial year is not more than £425,000. (7G) For the purpose of subsections (7A) and (7F) a supplier may be a company, a limited liability partnership, any other association or body of persons, whether or not incorporated, or an individual carrying on a trade or business.”Member’s explanatory statement
This amendment introduces a permanent exemption to the termination of supply contracts rules for the smallest companies (set at 50% of the size of small companies that are subject to a temporary exemption in Clause 13).

[Lord Vaux of Harrowden [V]]

My Lords, I believe that I have a minute and a half and we have 18 amendments to get through, which is not terribly satisfactory. My Amendment 51 seeks to introduce a permanent exemption to the termination of supply clauses for very small businesses. I am very concerned that these clauses could be particularly difficult and burdensome for small businesses. The Government recognise this with a temporary exemption, but the clauses are permanent. Having to supply with uncertainty of payment, possibly on top of overdue debts prior to the moratorium, will be disproportionate at any time, pandemic or no pandemic.

Given the time, I will not go through more detailed arguments than that, other than to say, in response to the point that the Government made in one of the previous meetings we had that making it permanent for all small businesses would render the supply protections less useful, that I have therefore drafted the amendment so that it applies only to much smaller companies that are 50% of the size of the ones the temporary exemption applies to. That is arbitrary and I am very happy to discuss it further.

In addition, my Amendment 54 is a very small technical amendment that would simply reduce the tests that a small company that is less than a year old has to apply to meet the small company exemption. It would have to apply only a turnover test. It is a little, technical thing, but it would make life easier for small companies. I beg to move.

[Lord Hendy [V]]

Could I ask the Deputy Chairman of Committees how long we have?

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[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.

[Lord Vaux of Harrowden [V]]

My Lords, given the time, I will not try to sum up the brief debate we have had on these 18 amendments, including one dealing with small companies and one relating to employment situations. I look forward to the letter from the noble Baroness and ask that she has another look at how we might mitigate the impacts on the very smallest of businesses, otherwise we may have to revisit the matter on Report. That said, I beg leave to withdraw the amendment.

Amendment 51 withdrawn.