Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Peter Grant Excerpts

2nd reading
Monday 28th June 2021 Commons Chamber

[Peter Grant (Glenrothes) (SNP)]

I am pleased to contribute to this debate. I will confine my remarks to clauses 2 and 3, which are the ones that apply in the whole of the UK. The Minister pointed out that clause 1 does not apply directly to Scotland.

The SNP welcomes the provisions to close the loopholes that have been identified, although they do not go nearly far enough. I am a bit concerned that this is the second or third time recently that a Bill has been brought forward to tighten up on director and company misconduct and company fraud, but it is framed so narrowly that it is almost impossible to amend it to widen its scope or improve it further. Although we will not oppose Second Reading tonight, I hope that we are not too far away from a more comprehensive review of companies legislation with a wider scope so that Members with particular changes they want to see are able to put them forward to be debated by the House.

In effect, the proposals make a slight change to the way in which the directors of a company are allowed to be completely separate from the company itself when things go wrong. The concept of creating a separate legal entity when a limited company is formed is perfectly sound. There were valid reasons for introducing it 150 or 200 years ago, when companies legislation was in its infancy. Many of those reasons are valid today, and we should retain the protection for directors, senior managers and, indeed, shareholders of companies that go to the wall through no fault of their own, through bad luck or misjudgment. But the reasons for protecting company directors do not extend to making it harder to deal with con men, and the occasional con woman, who set out to become millionaires at the cost of other people’s pensions, savings and hard-earned cash.

When there are reasonable grounds to believe that the directors of a company have been guilty of serious misconduct—including criminal misconduct, in some cases—we cannot allow them to delay, reduce or in any way frustrate the result of punitive action just by dissolving the company. That would be like saying that somebody who faces charges under the Road Traffic Acts can get away with it just by scrapping the car. It is not the vehicle that is at fault but the people who were driving the vehicle at the time.

The Government have rightly pointed out that some of the abuses in respect of which they want to tighten up are those carried out by what are called phoenix companies: the directors shut down one company and in essence resurrect the same company, but because they give it a different name, rank and serial number it is legally a different company and all the sins of the previous company are forgotten about.

Directors do not even need to close down the guilty company first: the same abuses can equally well be perpetrated by running two or three—or, in a case I will come to in a moment, 23—parallel companies with exactly the same couple of shareholders and exactly the same couple of directors, and very often no other employees at all. Through a process that is sometimes lengthy, sometimes short, they dump all the liabilities and debts on to one company and shut that one down, while the assets and benefits are hidden away in a separate company, to be shared only by the directors. In those circumstances, surely it is right that the Insolvency Service and other regulators have the unrestricted right to pursue the individual directors, regardless of which company name they hide behind at the time.

It has to be said that if the Government are serious about imposing improved standards of integrity in the City of London, it is unfortunate that they have chosen to present the Bill on the day when one of their own Ministers told the BBC that the standard of integrity in Government conduct by which they want to be judged is what they can get away with electorally. There is a double standard there that is perhaps not directly relevant to this debate, but the Government cannot afford to ignore it.

Let me mention one example of what can go wrong when directors appear to run a company for their own benefit and not for the benefit of those whose money they are supposed to look after. The Nunn McCreesh limited liability partnership was incorporated in August 2012 and dissolved by voluntary strike-off in October 2015. It had only three officers: Phillip Nunn, Patrick McCreesh and a company that they jointly owned called It’s Your Pension Ltd, incorporated in 2013 and dissolved by voluntary strike-off in 2016.

Coincidentally, at the same time that Mr Nunn and Mr McCreesh took the decision to dissolve the limited liability partnership, the Insolvency Service was finding that the LLP had been paid nearly £900,000 for identifying investors for Capita Oak—a name with which Members will be familiar as it was a pension fund that collapsed, taking £120 million of other people’s pensions with it. Capita Oak remains under investigation by the Serious Fraud Office; we do not know whether the part played in the Capita Oak story by Nunn McCreesh and numerous other companies is part of that investigation.

Mr Nunn and Mr McCreesh moved on quickly from their dissolved LLP and set up a whole web of companies —23 at the last count—under the Blackmore brand. Between 2016 and 2019, one of these companies, Blackmore Bond plc, raised £46 million by selling high-risk mini bonds to investors that they knew were completely unsuitable for that type of investment. Blackmore Bond plc went into administration in 2020 and the investors have almost certainly lost all of their £46 million.

[Kevin Hollinrake]

The hon. Gentleman has raised a very interesting case. I am sure he will be aware that the Financial Conduct Authority was warned on numerous occasions about the activities of Blackmore Bond but apparently did nothing about it until it was far too late.

[Peter Grant]

I do not know whether the hon. Gentleman was reading through the back of my notes, but he is only about five or six lines ahead of what I was going to say.

I do not know whether Mr Nunn and Mr McCreesh were ever placed under formal investigation, or whether they might still be under investigation, for their part in the Capita Oak story—for obvious reasons, that kind of information is not shared—but surely the fact that they were able to dissolve their company should not make any difference to the investigations to which they can be subjected and the sanctions they should face if they are found guilty of misconduct in their management of Nunn McCreesh LLP or, indeed, any of the umpteen other companies they have run.

Perhaps if, as the hon. Member for Thirsk and Malton (Kevin Hollinrake) indicated a moment ago, the various regulators had communicated with each other more effectively, the Financial Conduct Authority would have heard loud alarm bells ringing when in 2017 it was alerted to the highly questionable sales techniques that Blackmore Bond was using; perhaps if the FCA had made the link to the dodgy practices in relation to Capita Oak that were carried out by a different company under the same ownership and direction, it would have moved faster than it appeared to do; and perhaps, at least, the investors who ploughed £26 million into Blackmore Bond after the FCA was warned about it would have had some warning that the Blackmore Group might have been better named the Black Hole Group, because that is exactly what it became for £46 million of other people’s money.

I described that one scandal out of the many I could have described to remind the House that we are not just looking at a theoretical loophole here; we are looking at regulatory weaknesses that have allowed chancers and charlatans to make well over £1 billion of other people’s pensions and life savings disappear, and that is before we start to look at the business-to-business frauds that have forced small businesses into liquidation, often at massive financial cost to the entrepreneurs who have set them up.

The provisions in clauses 2 and 3 address just one of those weaknesses, and much more is needed. We need a complete reform of Companies House so that, for example, details of the beneficial ownership of Scottish limited partnerships and other secretive company structures have to be published. We have known for years that SLPs have been used to launder millions of pounds of dirty money created by illicit business activities, usually related to organised crime. We need to see action soon to put a stop to that. We need to reinstate the principle of the reverse burden of proof on senior bank managers, for example. When something goes wrong on their watch, rather than it being up to the authorities to prove that they were negligent, can we go back to requiring the bank manager to prove that they were doing the right thing? This reverse burden of proof often applies in other cases of professional misconduct or questions about professional conduct. All our regulators, including the Insolvency Service and the Financial Conduct Authority, need to be adequately resourced to keep up with the almost limitless ingenuity of the criminals they are trying to keep tabs on. That is about not just the amount of money they have, but the degree of training and experience that their people have, so that the person asked to take a decision as to whether somebody is fit to be registered with the FCA has the experience to know what kinds of warning signs to look out for.

Finally, we need legislation that allows us not just to disqualify directors who are guilty of wrongdoing; it should allow the authorities to order them to pay compensation to the victims. In some cases, I will support that on the basis of a civil balance of proof, which is on the balance of probabilities, rather than the much higher bar of proof beyond reasonable doubt, which is why so many cases that the Serious Fraud Office takes to court never get as far as a conviction. We welcome the provisions in clauses 2 and 3. If the long title and the scope of this legislation had allowed it, we would have been submitting a significant number of amendments to improve it on Report. I hope the time is not too far away when legislation on the wider issue comes before the House so that directors cannot simply avoid disqualification by scrapping their vehicles.

--- Later in debate ---

[Paul Scully]

I will not give way, but I will happily come back to the hon. Lady if I have not answered her question. I do want to get through a few areas.

Let me quickly turn to the disqualification of directors of dissolved companies. The issue of insolvency funding came up a few times. Clearly, we will be working with the Insolvency Service to ensure that it has the resources to do its job. It employs its finite resources to the maximum effect by prioritising cases in which there has been most harm to the public and the wider marketplace. Clearly, its resources are not limitless.

The hon. Member for Strangford (Jim Shannon) asked about insolvencies. Actually, the number of insolvencies has been at a 40-year low over the past few months because, effectively, in many areas, the economy has been held in stasis. That is why it is so important that, having put £352 billion-worth of support into the economy, we now have 352 billion reasons why we have to get the next bit right—why we have to help shape the recovery through these mitigations. We need to make sure that we continue to flex and continue to extend the support. That is why furlough carries on until September and why we have ensured that the winding-up proceedings have been extended for another nine months as well, so that we can get conversations going with landlords and tenants. It is so, so important to continue these measures.

I am glad that we have had broad support for the measures. In terms of compensation, directors can obviously be held personally liable for debt, and where there are breaches, there is disqualification.

[Peter Grant]

I note the Minister’s comments that directors can be held personally liable, but does he accept that allowing an individual investor or creditor to sue a director at their own risk is very different from a scheme through which the Government or some other body effectively take that legal action on behalf of a group of aggrieved individuals, who individually cannot afford the risk of taking that action?

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Second sitting)

Peter Grant Excerpts

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[Seema Malhotra]

Q Let me follow up on that. Thank you for giving evidence. You laid out a broad landscape of institutions and organisations that you said were together allowing the crime to go on, on the scale that you believe it is. You went on to say that the regulation is not really built to cope with what is happening. As part of that systemic issue, what do you think the Insolvency Service is not doing as well as it should, and does it have the resources that it needs to perform its functions effectively?

Andrew Agathangelou: I will answer your question, but before I do I would like to elaborate on a small point that you made. I actually think that the regulatory framework has been built by Parliament to do what it is designed to do. The problem is not that it is not capable of doing it; it just does not do it. It is a bit like having a really fast car that is just not being driven fast by the driver. The problem is not the vehicle; it is who or what is controlling it. I just thought I would throw that in.

To respond to your question more specifically, again I am a plain-speaking person. The Transparency Task Force ran an event last Thursday, with the title “The Great Insolvency Scam”. I can provide the Committee with the recorded video testimony of that. The reason why we ran an event called “The Great Insolvency Scam” is that we see insolvency as a very dark and murky part of the world of business and commerce. We believe that there is a pile of evidence suggesting that the Insolvency Service has been weaponised. That is where the Insolvency Service is frankly abusing its very extensive powers.

The net result is that people sometimes have their homes or businesses taken away from them, as a consequence of engineered bankruptcies. It really is an horrific, dark area. It sometimes results in people self-harming, committing suicide and all the rest of it. I will now answer your question directly. Personally, the Insolvency Service is a can of worms. I will repeat that it is my personal opinion. I think the Insolvency Service, in part, is a can of worms that needs to be opened up and looked into. It needs to be properly regulated.

I have enormous concern about giving the Insolvency Service lots more money to carry out the additional work that is going to be necessary as a consequence of this Bill going through, if it does, without first ensuring that the service is fit for purpose. These are very strong views. I am not an extreme individual who has crazy ideas. I have just listened to and seen the testimony of people who have suffered as a consequence of the types of things I am talking about.

Think of this Bill as the start of an ongoing process of reform. Please do not think of it as the end point. Please do not make the mistake of thinking that it is a “job done” situation. It really is not. There is so much to be looked at. I ask the Committee to do all it can, on behalf of the British public, to ensure that the Insolvency Service stops doing what it sometimes does.

[Peter Grant (Glenrothes) (SNP)]

Q Good afternoon, Mr Agathangelou. Picking up on your last point, I do not know if you are aware that a couple of amendments have been tabled that would require the Minister to come back to Parliament and report at a future date, first, on the extent to which the powers of the Bill had been used and, secondly, with an assessment of how effective the Bill had been in addressing the problems that had been identified. In your view, would those amendments strengthen the Bill, make it weaker or make no difference?

Andrew Agathangelou: If the purpose of the Bill is to have a positive effect, of course they would. You manage what you are monitoring. If things are being looked at and checked, and if the progress you are hoping will happen does not, you have a chance to review, to modify and to ask challenging questions about why what Parliament wanted to happen has not.

There is a great parallel. I was involved in giving evidence on the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill 2021-22 a while ago. The parallel there applies here. It is absolutely vital that there is a requirement for those responsible for executing the will of Parliament to be accountable and to be able to demonstrate that they have done so.

I would be disappointed if it took an amendment to make that happen. It should go without saying that you do not just abdicate your authority, pass the Bill and hope it happens. That to me would be a very poor approach to governance in terms of ensuring that legislation is effective. Essentially, if you want the Bill to work, you must ensure that what is supposed to happen after it is passed does actually happen. To my mind, frankly, that is very clear and obvious, and I cannot begin to think what the argument against that would be. How on earth could somebody argue against the idea of making sure that something you hope works does work? I could not even begin to think about how to argue that.

[Peter Grant]

Q One of the questions we looked at in quite a lot of detail this morning was the retrospective nature of part of the legislation. It does not create a new offence or mean that something that was lawful at the time is retrospectively made unlawful, but it gives the Insolvency Service powers to look back at previous events that it could not have looked at in the same way before. First, do you agree with the principle that the Bill should be retrospective? Secondly, what are your thoughts on the three-year time limit that says that the Insolvency Service can look only at things that happened in the three years before a company is dissolved?

Andrew Agathangelou: First, yes. In my opinion this most certainly should be made retrospective. Why not make it retrospective? If the purpose of the Bill is to catch the baddies and to mitigate the risk of others deciding to go about doing this stuff as a direct consequence of the very powerful deterrent effect, why on earth would you not make it retrospective? To my mind that is really clear. I cannot imagine why you would not want to make it retrospective, if you had the power to do so. You are Parliament and obviously you do have the power to do so, so why not do it?

Three years is the blink of an eye in this context. There are all sorts of things that directors can—and do—do to play the game. They know the rules and regulations, and they know how to dance in, on and around them. The longer the time that you can go back, the more good you are going to do. It is as simple as that. The further you can go back and prosecute people who have broken the law, and wilfully and callously committed offences, the better. Why not make it 10 years or 15 years? I do not know what the right timeframe is, but to my mind three years seems like a very short period of time.

If the objective is to try to clean up our country, then make the timeframe as long as you can. I make this point because on the international scale I should mention that we have about 1,000 members outside the UK. It shames me to know that outside the UK, the UK is considered to be one of the worst places in the world when it comes to economic and financial crime and fraud. Some countries think the UK is the laundromat of the world. There are huge concerns over money laundering and over international drug money, terrorist money and so on.

Given how bad the level of fraud, white-collar crime, corruption and those sorts of things are within the UK, I would suggest that Parliament should come at this from the point of view of, “We should now be as powerful as we can be in opposing these dark and dangerous forces, unless there is a really good reason not to, because we have a national duty to do so.” I was brought up with the idea that the UK was a world leader when it comes to these sorts of things, but frankly the evidence really does not show that.

I want to make one particular point, Peter, if I may? There is a very powerful database called Violation Tracker that tracks the levels of violations by companies against the US authorities. When you look at the data in there, you find some startling trends, and the first is this: there are about $667 billion-worth of infringements against the US authorities by all kinds of industries. I think 52 industries are listed. The worst offending industry on the Violation Tracker database is the financial services sector, despite the fact that there is a long list of reasons why the financial industry actually ought to be the most trustworthy industry of all. That is not the case; it is actually the worst offender out of all of them. In fact, it is so bad that roughly half of all the infringements in that $667 billion total are directly attributable to the financial sector. In other words, it equates to all of the other industries put together.

My point is that the jewel in our crown, in terms of UK plc, is our financial services sector. I am of the opinion that if similar analysis to that which has been done in the US market were done in the UK, it would likely show a very similar picture. Therefore we should be fighting extremely hard to hunt down all perpetrators, all criminal dodgy directors. From my point of view, given the interest of my organisation, I think we should be relentless when it comes to chasing down people who operate scams such as Blackmore Bonds, Connaught, LCF, Premier FX, Lundy & Associates, and all the others.

[Peter Grant]

Q One final question, if I may, that ties together two of your previous answers. You said that you had certain knowledge of the type of scams that you just described, perpetrated by company directors who were doing the same thing many years ago. It is up to you if you want to name names in answer to this question, but are you aware of people conducting these scams now who could be disqualified from office as directors if the Insolvency Service went back and looked at the conduct of directors of companies that were dissolved earlier than the time limit of three years set out in this Bill? Does the three-year rule actually prevent the Insolvency Service from investigating directors currently conducting scams who, without that time limit, could be held to account and disqualified from holding office?

Andrew Agathangelou: Yes, that is absolutely the case. I will elaborate on my answer, if I may. Last year, the Work and Pensions Committee led by Stephen Timms MP opened an inquiry on pension scams. Many of our members are victims of pension scams, so as a consequence it is a topic we know rather a lot about. I will share a document with the Committee produced by the Transparency Task Force as part of our response to that inquiry, and that document will evidence without any doubt why it is absolutely necessary that the three-year limit is extended to five, six, seven, 10 years, however far back you can go.

I say this because I am working on the basis that if the regulators, the enforcement agencies and the Insolvency Service can prosecute criminals and have them pay fines or be locked up, or whatever it might be, they would want to do that. Why would they not want to prosecute the baddies? To my mind it is simple, and I absolutely assure you that in the document I will provide to the Committee, as well as other supporting documents and evidence, you will see named individuals who have been dancing around prosecution over many, many years—I think one is 11 years. This Bill, if extended to a proper duration of time, would become a problem for them.

I would take great satisfaction if this Bill helped to finally lock up individuals who are currently in very expensive villas in Florida, with properties all over the world, with all kinds of fancy cars and fancy homes, all paid for by the life savings of British pension savers and investors. That would be very rewarding to know.

[Navendu Mishra]

Q I believe that all 650 MPs will have constituents who have been victims of the practice of phoenixing. I believe you made reference to law enforcement agencies, Action Fraud and the National Crime Agency. Could you tell us a bit more about how big the problem of phoenixing is—directors using legislation to dissolve companies to avoid liabilities and further investigation?

Andrew Agathangelou: I cannot answer your question directly, forgive me—I do not have that data and have not done that research. Let us think of it like this: roughly four or five years ago, a man called Roberto Saviano, an investigative journalist, became quite famous for a period because he did some investigative journalism on the mafia, and as a consequence of that investigative journalism, he now lives, I believe, under police guard 24 hours a day because he lifted the lid on a whole load of really bad, really heavy stuff.

I am mentioning Roberto Saviano because about five years ago, at something called the Hay Festival, he made the point that London is the heart of global financial corruption. That is a pretty powerful thing for somebody to say, especially if they have been investigating the mafia for years and years. You can google it and find it yourself. This is a very serious heavy-duty investigative journalist.

I mention that because it is reasonable to assume that a lot of that corruption involves entities and companies set up for special purposes. If the UK is the worst country in the world when it comes to global financial corruption—or if it is not the worst, let us say it is in the top quarter of really bad countries when it comes to financial and economic crime and corruption—it is reasonable to assume that the artful dodge of phoenixing is part of the modus operandi of the “community” that does this kind of stuff. I cannot give you any facts or figures, but a little deduction suggests that it is a massive problem.

I will make one further point, if I may. One of the reasons why it is a problem is Companies House. It is still shocking to me that, despite about nine years of Parliament having an interest in Companies House, finally getting its act together and asking even really basic questions about the people behind a new company that is being set up, Companies House has been allowed to carry on behaving in the nonchalant way that it does, with its casual, risky and dangerous way of granting companies the chance to come into existence when no proper due diligence has been done.

Similarly, in the pensions world, there was a period of about three years when Her Majesty’s Revenue and Customs was happy to authorise the setting up of new pension schemes with the lightest-touch due diligence you can imagine. Basically, people were allowed to go online, fill in a form and create a new pension scheme, which would then be the perfect vehicle for scammers to use. That has happened so much.

While I am on this little rant, allow me to stay there with one more point. When the pension freedoms legislation was being introduced, many people said, “Woah, woah, woah, woah, woah! Before you go allowing people to transfer their entire pension savings in a lump sum, why don’t we stop and think what the risks of this are? Why don’t we have a conversation about whether this might lead to some kind of fraudster’s paradise?” But no, pension freedoms legislation was rushed through, and now, many years later, even the regulators, such as the Financial Conduct Authority, are making the point that not enough thought was given to the risks associated with that kind of casual, fast policy-making.

So there we go. Companies House is effectively advertising to criminals, “Come and set up a company in the UK. Don’t worry, we’ll turn a blind eye to pretty much anything that happens because, frankly, we won’t know what you’re doing or what you’re about because we won’t bother asking you.” That is one example of these sorts of issues. The second example I have given you is in relation to HMRC, and it goes on.

I honestly think that if anybody was to do some kind of independent, objective, evidence-based evaluation or analysis of the work of City of London police, the Insolvency Service, Companies House and the financial regulators—that very long list that I mentioned—around how effective they are at preventing crime from happening in the UK, I am pretty sure that report would be rather scathing.

--- Later in debate ---

[Peter Grant]

Q Good afternoon, Mr Swift. May I pick up on something you referred to and which was mentioned in the submission to us yesterday from your colleagues at R3? You said that there are a number of reports of potentially serious misconduct by directors that have been submitted by your members that do not seem to be acted on. I can understand that, as a representative body, R3 might not be privy to the details, but are you telling us that you will have had members who have acted as administrators or liquidators who have submitted highly critical reports to the Insolvency Service and have then seen the same directors coming back, setting up a new company and essentially restarting the same kind of misconduct? Is that the information that you are getting back from your members, even if they are not allowed to tell you which companies they are referring to?

Duncan Swift: Yes, sir, that is correct. Although director disqualification—banning a director or person from acting as such—is a deterrent, we also see instances of disqualified directors continuing to act as though they are the controlling party in corporate affairs subsequently. The serious rogue directors do not see being disqualified as a significant deterrent. A more significant deterrent is being held to account for the assets that they may have misappropriated and incurring personal liability for such actions that they have wrongfully undertaken while holding the office of director. That goes to the heart of the fact that more thought needs to be given by Government to how they will actually prosecute those directors. It is not just a matter of disqualifying them as directors. Crucially, what are the Government going to do in terms of revisiting the dissolved company that those directors have inappropriately dealt with through dissolution, rather than conducting an office holder investigation of their affairs, to enable some form of redress through the company’s position to recover assets and to compensate creditors who have lost out as a result of that individual’s actions?

[Peter Grant]

Q One solution that has been mooted— a partial solution—is that where an administrator or a liquidator makes a report beyond a given standard of belief that there has been serious misconduct, the fact of that report being submitted should be in the public domain. At the moment, it is a public fact that a report has been submitted, but the content of it is not published. Creditors of the dissolved company, and potentially investors in and creditors of a phoenix company, do not know whether any misconduct has been identified by the liquidator or administrator. Where do you see the balance of public interest in that case? Is there a question of potentially damaging the reputation of a director who turns out to have done nothing wrong? Or is it more important to protect the next generation of investors by flagging up that that particular director has had almost a yellow card—a report against them—that has not quite been followed up?

Duncan Swift: That is a very difficult question to answer. I am not a lawyer, so I am not entirely certain where the legal privilege lies. There is the risk that a well-intended but adverse report by an office holder based upon, more often than not, incomplete information might open up that office holder to legal action by the person who is the subject of that adverse report for defamation and impact on their character. It is a very difficult area.

In terms of the position of directors and dissolved companies generally, certainly suppliers, the providers of credit and those who rely upon the good name of an individual as a director are able to assess the quality of that name by dint of Companies House records on the track record of dissolutions and formal insolvencies of those individuals, as long as the Companies House data upon which that assessment is made is known to be accurate. Although this sits somewhat outside the Bill, reforms have been proposed to improve the veracity of the data that Companies House provides to all its users for that assessment.

To go back to an earlier question on improvements that can be made, and going back to the scale of the problem that this Bill currently does not really address, one thing I have not mentioned is that 95% of all company dissolutions are actually at the behest of Companies House. They are not at the behest of directors. Companies House has automatic strike-off for non-filing of accounts and non-filing of conformation statements. It is no surprise that those who would abuse the position of director choose not to file accounts and choose not to file confirmation statements.

One clear improvement would therefore be to remove the automatic strike-off power of Companies House, and to have that 95% of companies that would be struck off put into some form of quarantine or screening process—whether that screening is done by the Insolvency Service or some other Government body—as a precursor to deciding what to do with those companies earmarked for strike-off, and also for their registered directors. What was their behaviour leading up to the circumstances where such strike-off was being contemplated? At the moment, there is a huge volume of companies coming up for dissolution at the behest of Companies House, not at any other party’s behest.

[Peter Grant]

Q Would it make rogue directors less comfortable or less complacent about having one of their companies compulsorily struck off for what I think you described as non-compliance with reporting requirements? Would they be less likely to do that if there were also an automatic disqualification of all the relevant directorships at the same time? Would that act as an effective deterrent?

Duncan Swift: It would certainly act as an effective deterrent. I would have to ask—not having considered the question before—whether that would proportionate to the size of the problem. It would certainly be a proportionate deterrent in the context of this Bill if, rather than it being left to the Insolvency Service to investigate dissolved companies that were found to be insolvent after the event, the companies about to be automatically struck off for non-filing of accounts and confirmation statements had their position reviewed by the Insolvency Service at that point, pre-strike-off, to identify whether they should go through a compulsory liquidation process to address and fully investigate the director’s behaviour, and to recover assets for the benefit of creditors.

[Peter Grant]

Q May I play devil’s advocate for a moment and mention the fact that a lot of what you have suggested would generate a lot more work for insolvency practitioners? How do you persuade members of the Committee that what you are asking for is actually in the best interests of creditors, investors and suppliers of these companies, and is not simply trying to drum up more business for your employers?

Duncan Swift: I understand where the question is coming from, but actually what I am proposing is a lot more work for the Insolvency Service, which is the party that this Bill identifies as performing it. What I am saying is that that work should occur a lot earlier than after the event of a company being struck off—more than likely at the behest of Companies House—and subsequently found to be insolvent.

Pre-strike-off by Companies House, that review is undertaken, ideally, by the Insolvency Service, if it is scaled up to do that investigation. But as I say, the volumes are 10 to 15 times more than the volume of insolvent companies. Should it go into a compulsory liquidation process following that investigation or initial review by the Insolvency Service, it is the official receiver that is first appointed by the court to be the liquidator in the compulsory liquidation—so, it is Companies House, Insolvency Service, Insolvency Service. That is not a direct benefit to the private sector members of the insolvency profession.

[Peter Grant]

Q I have one final question. The legislation as it stands would set a three-year time limit on any application for disqualification, starting from when the company was dissolved. What are your views on that three-year time limit? Is too short, too long, or just about right?

Duncan Swift: I have to say, from experience, it is too short. Rogue directors or individuals who abuse the position of director go to great pains to extract all the asset value out of the companies that they are abusing and to provide a false, or certainly incomplete, trail of their actions as directors of the company. As an office holder coming in after the event, it is like pulling together a 3,000 or 4,000-piece jigsaw puzzle when holding only about five pieces to start with. You are having to make inquiries with multiple stakeholders, as well as interviewing the directors and their associates, to start to get the bits of the jigsaw puzzle necessary for a picture of what actually went on, in order to convince a court that what went on was actually a fraud upon the creditors and that the director had not acted properly. Again, from experience, although a relatively speedy pulling together of the jigsaw puzzle and convincing of the court takes three years, there are many cases where it takes far longer.

[Paul Scully]

Q To expand on a few of those areas, starting with the three-year time limit to file a disqualification application, the Insolvency Service or the Secretary of State can already examine historic conduct, but they have three years to file the application for disqualification. Can you expand a bit on what you meant about the court process, which presumably comes afterwards?

Duncan Swift: What I was explaining about the timeline was that for the office holder—whether it be the Insolvency Service or the official receiver as liquidator, or the Insolvency Service coming in to pull together a picture of the company’s financial dealings and the director’s conduct in the course of those dealings—it takes time. In the first phase in particular, it can take two years to get a reasonably complete picture before one can be confident of putting forward an application to court, either for a recovery of assets or, I would have thought, the disqualification of a director in circumstances where that individual may well be using the proceeds of such activities to defend their position, as well as seeking to confuse it to defend against the likelihood of such claims being brought against them.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (First sitting)

Peter Grant Excerpts

Committee stage
Tuesday 6th July 2021 Public Bill Committees

[The Chair]

We are now sitting in public again, and the proceedings are being broadcast. Before we start hearing from the witnesses, do any Members wish to make any declaration of interest in connection with the Bill?

[Peter Grant (Glenrothes) (SNP)]

One of the witnesses this afternoon is from the Chartered Institute of Public Finance and Accountancy. I am a member of that institute.

[The Chair]

Q So noted. We will now hear oral evidence from Stephen Pegge, managing director, commercial finance, at UK Finance. Before calling the first Member to ask a question, I should like to remind all Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion the Committee has agreed. For this session, we have until 10.30 am.

Stephen Pegge: Good morning, and thank you for the opportunity to come along today. My name is Stephen Pegge. I am managing director, commercial finance, at UK Finance. UK Finance is the trade association for finance and banking. We have around 300 members, many of whom provide services to companies, and we are involved more widely in supporting small and medium-sized enterprise policy.

--- Later in debate ---

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Q Thank you for your evidence today, Mr Pegge. I understand that you helped to establish the covid-19 lending schemes. The Government have suggested that some companies have been dissolved to avoid paying back Government loans given as coronavirus support. Have you seen any evidence of that? If these measures go through, do you believe, from your experience and what you have seen, that the Insolvency Service is adequately resourced to deal with the expansion of powers it would have through the Bill?

Stephen Pegge: Yes, we have seen instances of this practice being used to try and avoid liability under bounce back loans. Back in May 2020, UK Finance with the British Business Bank established the bounce bank loan fraud collaboration group. It involves attendees from the Cabinet Office; CIFAS, the UK fraud prevention service; the Treasury; BEIS; and the National Investigation Service—NATIS. The aim is for intelligence to be shared, good practice to be developed and a threat log to be maintained and fed into the National Crime Agency and the National Economic Crime Centre. In fact, this was one of the practices which had been identified through that and has led to some efforts more recently to try to intervene and intercept these cases of dissolved companies involving Companies House and BEIS.

In the meantime, it is always possible that these cases may well have got through and there is some evidence—again, reported by the Insolvency Service—that there could be around 2,000 such cases which are dissolved and where currently the powers to investigate do not exist, so it is a real problem. If it were to become a more popular route for fraud, while there are mechanisms to deal with it and creditors can object when they get notice through alerts when these situations are gazetted, unscrupulous individuals can still get through and it is important that it is closed as a loophole.

As regards the resources of the Insolvency Service, we have all been conscious that, while the number of insolvencies has been low during a period of suspension and the generous support that has been provided to businesses through public agencies and the finance industry, we would expect that to rise significantly in this next period. There is already some evidence that it will do so. It is important that the Insolvency Service is resourced sufficiently to be able to deal with this. The evidence at the moment is that they have been involved in disqualification of directors in something like 1,000 or so cases across the last year, so it is quite possible that there might be a rise in the amount of work that they will need to do. We would certainly support any investigation into what additional resources might be necessary.

[Peter Grant]

Q Good morning, Mr Pegge. You have described the loophole of company directors being able to dissolve the company in order to avoid their liabilities. Another way that directors can act is to set up two or three companies, transfer all the assets out of a company, dissolve the company with the debts and retain the companies with the assets. Is that a loophole that will still exist, even if the Bill goes through? If that loophole continues, is there a danger that that then becomes the route of choice for dodgy directors to avoid their liabilities?

Stephen Pegge: I think the practice you are describing is sometimes called phoenixing—setting up a company in the same location with the same assets purporting to be the same business with the same directors. It has certainly been a matter of concern for some time. Putting in place these measures should help to discourage and mitigate the risks of phoenixing: I do not think it entirely removes it. As you say, it is possible, even without these additional powers of investigation, for that to take place, but certainly where there is evidence of abuse, the fact that the Insolvency Service will have powers under the discretion delegated by the Secretary of State to investigate the directors, take action against them in terms of disqualification more generally, and seek compensation from them personally for losses suffered will discourage the practice of phoenixing, which I know is a concern. As I say, I do not think that it entirely removes it, but it certainly will discourage it, and to some extent remove some of the possibilities of it taking place.

[Mick Whitley (Birkenhead) (Lab)]

Q Welcome, Mr Pegge. Do the Government proposals address all the problems that have been identified with the dissolution process in relation to liabilities and directors’ conduct?

Stephen Pegge: This is certainly a very important contribution to addressing major issues, and it is the one that we have been most concerned about recently. We have seen, as I mentioned, real evidence of dissolution being used as an attempt to avoid liability, but I stress that in many cases dissolution is an efficient and appropriate way for companies to be removed from the register where there is no money owing and that business is ceasing, without going through the time and cost of liquidation, which obviously is available as an alternative—for solvent businesses through members’ voluntary liquidation, or in insolvent situations through creditors’ voluntary or compulsory liquidation. I am not aware of significant other means by which we need to deal with abuse of dissolution. This is the one that has been most to the fore in the evidence that we have seen of abuse, certainly through the fraud group.

--- Later in debate ---

[Paul Scully]

Q Finally, what effect do you think there would be on lending if this regime did not come into place or the loophole were not closed? Would there be a chilling effect?

Stephen Pegge: As you say, it is a matter of a chilling effect. It is one other factor that would weigh on finance providers’ minds when making lending decisions. This is a crucial time for lenders to provide finance. If you look at the latest Bank of England figures, for May, which were published last week, some £7 billion of new lending was provided to SMEs.

Latest surveys suggest that high proportions of loan applications are being sanctioned—something like 85%—and we want that to continue. The expectation that this sort of loophole is being closed should build confidence. It will ensure that there is discouragement of bad actors, so that it does not grow out of proportion, which we fear might otherwise be the case.

[Peter Grant]

Q Good morning again, Mr Pegge. I apologise because I think I mispronounced your name earlier because I tried to read it without my glasses on. In an earlier answer, you referred to the retrospective nature of parts of the Bill. You indicated that you supported them. In particular, you referred to the fact that the Government had made it clear since 2018 that the legislation was coming.

Clearly, we are not creating a new offence that was not illegal at the time. We are considering legislation to make it easier for the authorities to act against people who may have committed offences, which I think is an important distinction. Even given that, is there an argument that the retrospective power should apply only to the date when the Government first published their proposals to legislate? Would you still support the Insolvency Service if it wanted to take action in relation to things that had happened in, say, 2015 or 2016? Would you have any concerns about that?

Stephen Pegge: As you say, this is essentially a technical loophole, which the Bill seeks to close. All it does is confer powers of investigation, with significant and rigorous practices in terms of investigation. The risk of miscarriage of justice is relatively limited. I do not have a particular date in mind. The point I was trying to emphasise was that this has widespread support and has had for some time.

[The Chair]

Thank you for joining us today, Mr Pegge, and taking the time to give evidence to the Committee. We are grateful.

We should be moving on to the next panel now but apparently the next witness is not ready. I will adjourn the Committee for a short time. We will reconvene when we have the next witness online. Thank you.

--- Later in debate ---

[Seema Malhotra]

If you change your mind you can always let us know.

[Peter Grant]

Q Good morning, Mr Kerr. May I come back to the retrospective nature of parts of the legislation? The three-year period will be permitted because that is what the current timescale is. Given the notorious complexity of a lot of financial misconduct cases and the fact that they are long drawn-out processes, is there an argument for that three-year period to be extended in cases where there is an indication that there is not only misconduct, but potentially criminal fraud? I am thinking about cases in which the potential fraud runs into the tens of millions of pounds. Is there an argument that in those cases, there should be no hiding place for criminals of that scale, simply because of the length of time they have managed to get away with it?

David Kerr: That is a fair point. I suppose the statute of limitations could be considered a relevant backstop, but I will come back to my previous point that we have a three-year limit in relation to investigations into directors’ conduct in insolvent situations, and that has been with us for 35 years. I have not heard any suggestion from the Insolvency Service that that has proved to be inadequate. This is effectively an extension of the same power into dissolved company circumstances. I have not seen or heard any evidence to suggest that it is an inadequate period.

[Peter Grant]

Q You say that you have not heard any such representations from the Insolvency Service. Have you had any such representations from lenders or creditors? They may take a different view from the Insolvency Service if it is their money that is at stake.

David Kerr: Perhaps some in the creditor community would like it to be a six-year period, but I do not think they have argued strongly for it, and I do not think there is a necessarily a case made for that. From a creditor perspective, in an ideal world, perhaps it would be open ended. That may be unrealistic.

[Paul Scully]

Q Thank you for giving evidence, Mr Kerr. Can you talk a little bit more about the deterrent that you spoke about? How much of an impact do you think the measure, and especially the threat of disqualification, will have on providing the necessary deterrence?

David Kerr: The current disqualification provisions act as a deterrent to some extent, because directors know that, in respect of every company that goes into an insolvent liquidation or administration, there will be some inquiry. There is an obligation on the insolvency practitioner to carry out a certain amount of inquiry into the conduct of the directors of those companies and make a report in each of those cases to the Insolvency Service on their conduct. The provisions do not provide for the same report. It will have to be triggered by something else, whether that is a creditor complaint or other information, but it will provide the opportunity for the service to make the same inquiry.

--- Later in debate ---

[The Chair]

Thank you, Dr Tribe. Peter Grant next.

[Peter Grant]

Q Thank you, Ms Rees, and good morning, Dr Tribe. Following on from that last question, there are three kinds of sanctions available now: the director disqualification, the compensation order and, ultimately, criminal prosecution. Are there significant differences, first, in the burden of proof required for each of those actions, and secondly, in the cost and time taken to bring any of those actions to fruition?

Dr Tribe: I think you are right to point out that there are different avenues that could be visited on the directors that we are talking about. We are not necessarily talking about directors in the general run of business; we are talking about people, as perhaps you suggest, who engage in criminal behaviour. For example, with the bounce back loan scheme, a form of fraud could lead to a prosecution.

What we are dealing with today, though, particularly with this amendment to the Company Directors Disqualification Act 1986, is a regulatory function, so we are dealing with a lower burden of proof than we would if it was a criminal sanction for any subsequent prosecution for fraud. In that sense, on the Insolvency Service’s work on what is known as a jury question in the context of directors’ disqualification, with each case being looked at on its facts, the determination whether whatever has occurred has been deemed to be unfit does have that lower evidential burden than any subsequent criminal activity that the prosecuting authorities might address. In that sense, the disqualification regime is perhaps better able to get deterrent-type results than mounting subsequent criminal prosecutions. We know, of course, that the criminal justice regime is also having some problems with funding. If the disqualification regime is able to achieve any public policy outcomes in terms of deterrent, in a regulatory manner, that is perhaps quite effective.

[Peter Grant]

Q You also mentioned, as some other witnesses have, what is known as phoenixing. There is a variant of that practice whereby, rather than creating a new company immediately after the old one has been dissolved, you create what looks on the surface like a legitimate group company structure, and then over time, you very quietly shift all the assets over to one company, leave all their liabilities in another one, wind up the company with the liabilities, and then the directors help themselves to the company with the assets. Does this legislation do anything to address that particular loophole, and if not, what further changes are needed to prevent, or at least strongly discourage, that practice?

Dr Tribe: That is an interesting question because it highlights the long history of English and Welsh and Scottish company provisions when we are thinking about the nature of groups of companies and then single entities, and how structures and groups are used and how we move value between one entity and another.

There is the quite interesting case of Creasey v. Breachwood Motors Ltd where, because of an employment claim, value was moved into a new entity, and of course the claim was left with the original company, meaning that that employee had an empty shell through which to pursue their claim, which was problematic. The judge at first instance was able to say, “No, in the interests of justice, you can switch your claim to that new entity.” That judgment was overruled subsequently, but it does raise an important point. Indeed, in the case that overruled it, the group reconstruction that occurred was held to be legitimate for tax reasons. There are instances of the kind of behaviour that you are talking about that can perhaps be problematic in the pure phoenixing sense, but then there are legitimate reconstructions that happen where the intentions of the directors were for tax efficiency or some other purpose that is not unfit or nefarious in the way that we are discussing.

In terms of the misuse of the corporate form, one can go right back through our company law history to recite many examples of essentially what we are talking about—phoenixing, or what has been called centrebinding—and some of the critique of pre-packaged administration is around the same point. Is it appropriate that the corporate form is able to be used in this way so that the creditors of company A are left languishing while all the value is moved into company B in the way you have described?

That takes me back to my introductory response point, which is that in English and Welsh and Scottish law, for a very long time we have used the separate juristic person—the company as a thing. It is a really sacrosanct idea that, just like I am not responsible for your debts, and you are not responsible for mine, we have that structure in place for policy reasons, and have done since the 19th century originally, to aggregate wealth and entrepreneurial activity. I suppose you as the legislature expect that, as part of that privilege that you have allowed incorporators to use, over time you will get some form of abuse, and that element, which is hopefully as small as possible, has to be dealt with, like we are trying to do today, or, to some extent, tolerated.

[Peter Grant]

Q Finally, I want to look at the retrospective nature of some of the provisions from a legal point of view. First, do you have any concerns not about the principle of creating a retrospective offence, which the Bill does not do, but about retrospectively giving powers to an enforcement agency that we used not to have? Do you have any concerns about the natural justice issues that that might raise? Alternatively, are there circumstances where the three-year time limit is too short and where you would be in favour of allowing the Insolvency Service to go back more than three years before the dissolution date?

Dr Tribe: On your first point, which was about retrospective activity, it is much like the Corporate Insolvency and Governance Act 2020 reforms, which have successfully been passed. We have seen lots of new cases on the provisions that were in that Bill; it has been very successful. The reforms in that statute were mooted much earlier, in 2018. It is the same with this suggestion to close the dissolution loophole. Much like with the 2020 CIGA provision, the coronavirus has freed up legislative time to get both sets of provisions—the CIGA activity and the dissolution activity—in front of you to get it on to the statute book. Some of this was discussed by Sarah Olney on Second Reading.

What does it mean in terms of the retrospective nature of what you are doing? We had the idea some time ago, and corona has meant that we have had to address it against the backdrop of the bounce back loan scheme. Unfortunately, the abuse of that scheme seems to be so massive—as we have seen, there is a £16 billion to £27 billion projected shortfall, or loss—that we need to go back in time to look at some behaviour. Of course, we are not generally speaking about breaches of duty in the general sense of directors’ duties. We are talking about what could be seen as the use of the corporate form purposely to avoid the insolvency provisions and the oversight that they can give, with the powers that are currently in the Act that we are dealing with.

That needs to be dealt with, and if it is in a retrospective way—you may have seen in late June that there was a disqualification order for 12 years because of some fraudulent activity that had occurred with a Mr Khan and his Birmingham-based business, where he had forged documents to get a bounce back loan of £50,000. The Insolvency Service successfully brought that action following administration. Some Glasgow-based companies have also been wound up in the public interest because of bounce back loan abuse. To answer your question briefly, it is the bounce back loan fraud that has meant we have had to act retrospectively. No, I do not have any issues on that point.

On your question about three years, I suppose that again goes back to funding and time limits, and whether the Insolvency Service is adequately resourced to deal with the amount of dissolutions—whether it is 5,000 as predicted, or whether the forthcoming PwC report shows that it is much worse. If it is well resourced, the time issues might not be such a problem. If it is not, they perhaps will be.

[Peter Grant]

Thank you.

[The Chair]

I call the Minister.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill (Third sitting)

Peter Grant Excerpts

Committee stage
Thursday 8th July 2021 Public Bill Committees

[The Chair]

Mr Grant, would you like to speak on these provisions before I put the Question?

[Peter Grant (Glenrothes) (SNP)]

I am very grateful for your understanding, Ms Rees, in allowing me to speak. I would like to make some comments on clause 2. I think that the new clauses are good and I hope that the Committee will agree to them.

There is widespread agreement that clause 2, or something very like it, is needed. We have seen only one dissenting submission from anybody, and that was from an individual solicitor. Speaking as a legal layperson, I thought that that submission contained inconsistencies and seemed almost to miss the point of the legislation. Although I respect the right of that individual to express their views, I cannot agree with them.

We already have legislation that gives the Insolvency Service three years to apply for a disqualification order against the director of a company that goes through a full liquidation if it finds evidence of misconduct in the running of the liquidated company. If the director chooses to dissolve the company without going through liquidation first, the Insolvency Service cannot move to have them disqualified from other directorships for misconduct in the running of the dissolved company.

To indicate how untenable that inconsistency is now that it has been identified, I invite the Committee to imagine that the clause we are debating had been included in the Company Directors Disqualification Act right at the beginning. If somebody had come forward with a proposal to change the Act to create a special exemption for directors who deliberately dissolved their company as a way of dodging the consequences of the own misconduct, nobody would have taken it seriously. We would not create a loophole deliberately. The only disappointment I have is that the proposal to close this loophole has taken so long and that there are still far too many other loopholes for criminals to exploit.

I want to repeat a comment I made on Second Reading, and on which I asked a number of the witnesses to comment on Tuesday. The Government rightly point to the increase in phoenix companies that are set up as part of, or immediately after the dissolution of, a dodgy company. A similar abuse can and does take place where the phoenix company is a long-established associate company of the one being dissolved. The abuse does not rely on a new company being set up if the directors have a few handy replacement companies already in the bank, or on the Companies House register.

During the evidence sessions, I asked a number of witnesses if they had any concerns about the retrospective nature of clause 2. It is important to remember, as the Minister has pointed out, that we are not retrospectively outlawing something that was legal at the time; all we are saying that if someone is strongly suspected of having acted improperly or illegally in the past, that misconduct can be properly investigated. We are not even giving additional powers to the regulator to act; we are removing an artificial barrier that should probably never have been there in the first place to allow that investigation.

We heard an interesting range of views from witnesses on the three-year time limit. As the Minister pointed out, that limit applies from the date of dissolution, not the date of misconduct. If, for example, the directors of a company dissolved it in 2019 because they realised that their misconduct of 2015 was beginning to be picked up by the Insolvency Service or anyone else, they would not get away with it. For now, I think it makes sense to retain the three-year limit that applies elsewhere in the original Act, but I ask the Minister to give careful consideration to extending the limit in future legislation.

In other debates, I have referred to the scandalous way in which Blackmore Bond plc targeted very high-risk investments at people it knew were looking for quite the opposite—a safe place to invest money they could not afford to lose, as they had told the directors of Blackmore Bond. The investors have lost pensions and life savings totalling £46 million. The shareholder directors, Phillip Nunn and Patrick McCreesh, still appear to be doing very nicely indeed, thank you very much.

In 2015, the Insolvency Service, as part of a much bigger investigation into at least one other company, found that through an earlier company called Nunn McCreesh limited liability partnership, the same Phillip Nunn and Patrick McCreesh had been paid nearly £900,000 to identify investors for Capita Oak—an investment scheme that is now under investigation by the Serious Fraud Office. At the very least, there are major questions about what Nunn and McCreesh did for their £900,000 and about whether it was legal or proper. Perhaps by complete coincidence, also in 2015, Nunn and McCreesh dissolved the limited liability partnership.

Under the existing legislation, the Insolvency Service would not have been able to use any misconduct in the running of Nunn McCreesh llp to apply for disqualification orders against Nunn and McCreesh. It could not have stopped them from setting up the much more lucrative Blackmore Bond in 2016. The Bill still would not allow it to do so because of the three-year time limit. That is one reason I am asking the Minister to consider the three-year limit in future.

At least this legislation means that if another Nunn McCreesh llp comes along now, the Insolvency Service will have one small but important additional weapon in its armoury to stop it. It came too late to stop Blackmore Bond making £46 million by making other people’s money—other people’s life savings and pensions—disappear. Hopefully, the next Blackmore Bond will be stopped in time and that will not happen again.

It took only the briefest of searches this morning to find that Phillip Nunn, one of the directors of Blackmore Bond and Nunn McCreesh, was a director of no fewer than 10 different companies that have been dissolved in the past year. For most of them, the only other director was Patrick McCreesh. I do not know whether Mr Nunn or Mr McCreesh was ever placed under formal investigation for their part in Capita Oak, and I do not know what was in the liquidator’s report that was submitted to the Secretary of State about their conduct, as happens with any insolvency case, but surely the fact that they were able to dissolve the company in 2015 should not make any difference to the investigations to which they can be subjected now or the sanctions they can face if they are found or suspected to be guilty of serious misconduct in the operation of Nunn McCreesh llp or any of their other companies. When I was looking at the activities of Blackmore Bond, one of the other companies with which it went into what was called a strategic partnership led to another of these fascinating spider’s webs of dissolved companies and resurrected companies, one of which has an ultimate owner that is a limited liability partnership registered in England with five partners who appear to be members of the same family—two people of similar age who are the designated partners, and three people about 25 to 30 years younger than them who are partners but not designated. It looks like mum, dad and kids—why not?

According to documents that the senior designated partner certified and submitted to Companies House, which Companies House accepted and still has displayed on its website, one of those younger partners consented to the responsibility of being a partner in that partnership when she was 16 years old. One of them, according to those documents, consented to those responsibilities when she was 14 years old. One of them was 10 years old.

Some of our witnesses referred to the gross inadequacies in the processes of Companies House for checking the documents that are submitted to it. Those documents are being used to demonstrate that a company is genuine and bona fide. Those kinds of thing make it clear to me that while the Bill should be supported today and while the clause should be adopted with or without the related new clauses suggested by the main Opposition party, there are still massive holes in our regulation of companies through the Financial Conduct Authority, Companies House and the register of companies, the Financial Reporting Council and the professional auditing bodies.

Not a single part of the regulatory framework is working properly. Sometimes that is because the regulators are not doing the jobs that they are there to do. Sometimes it is because they are not resourced and do not have the firepower to compete with some of what they are faced with. Sometimes it is because the legislation we have provided them with is not fit for purpose. When those three things come together in so many regulators at the same time, it is no wonder, as one of our witnesses pointed out, that the United Kingdom is seen as one of the softest of soft touches for fraudulent companies. An entire company can be set up for no other reason than to steal people’s money.

I welcome the Bill, I certainly support clauses 2 and 3, and I will recommend that the Bill be supported when it returns to the House on Third Reading, but it is only a tiny step on a much longer journey. I urge the Minister and his colleagues in Government not to see the Bill as the last step, but to see it as the first in making the United Kingdom, whatever format it might take in the future, and all our four nations no-go areas for the scammers, chancers and charlatans for whom we have been far too soft a touch for far too long.

[Luke Hall]

I thank the hon. Gentleman for his powerful contribution; he is extremely well informed on these matters. I thank him also for his support and take into account his comments on the three-year limit. I am grateful for that.

The Government are certainly not pretending that the work stops here. However, the Bill is a positive step forward in the right direction and it is taking action. I will raise the points the hon. Gentleman has made today with the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Sutton and Cheam.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3 ordered to stand part of the Bill.

Clause 4

Extent, commencement and short title

Question proposed, That the clause stand part of the Bill.

Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill

Peter Grant Excerpts

Report stage & 3rd reading
Thursday 9th September 2021 Commons Chamber

Finally, we support the Government’s technical amendments to allow the measures to apply to Wales as well as England. We note that they are at the request of the Welsh Government and we welcome them.

[Peter Grant (Glenrothes) (SNP)]

rose—

[Mr Deputy Speaker (Mr Nigel Evans)]

I call Peter Grant.

[Peter Grant]

I beg your pardon, Mr Deputy Speaker. I am standing to speak to the wrong provision.

[The Minister for Regional Growth and Local Government (Luke Hall)]

I welcome the contribution from the hon. Member for Manchester, Withington (Jeff Smith). I shall start by responding to new clause 1, tabled by the hon. Member for Feltham and Heston (Seema Malhotra) and the hon. Gentleman. I am grateful to him for his constructive words and the way in which he has approached the debate.

The new clause would require the Secretary of State to report to Parliament on the number of directors investigated and disqualified under the new provisions in the Bill every three months from the date that the Act is passed. I am grateful to hon. Members for the opportunity to confirm to the House that statistical reporting is routinely undertaken by the Insolvency Service. Regular three-monthly releases cover company insolvencies across the whole UK as well as individual insolvencies in England and Wales. The releases also contain underlying data and are published and available online to everybody.

As well as that, since the start of the pandemic, the Insolvency Service has been publishing experimental monthly releases of data concerning insolvency numbers. This was so that the statistics could act as an indicator of the impact of the pandemic on insolvencies. It may be of particular interest to hon. Members that the Insolvency Service also releases monthly updates about its enforcement activities. This information includes not only the number of companies wound up in the public interest, but the number of disqualification orders and undertakings broken down by the relevant section of the Company Directors Disqualification Act 1986, under which they were sought. Going forward, these numbers will include any orders or undertakings obtained as a result of this new provision. The reports also include information on lengths of periods of disqualification. Furthermore, there is an annual report on the nature of the misconduct being alleged.

I hope that the hon. Gentleman is reassured that a large amount of information is already provided that can be accessed easily through a quick online search and that future reports of enforcement outcomes will include any disqualifications made against former directors of dissolved companies. I would be grateful to him for withdrawing his new clause.

Let me just add one last point. The hon. Gentleman also mentioned the new burdens on councils. I somewhat couched my answer the last time we spoke about it, so I just want to put on record that we will absolutely be meeting the new burdens cost, including the associated administrative and IT costs.

--- Later in debate ---

[Peter Grant]

I am pleased to make a brief contribution to the debate. As I did at earlier stages, I will restrict my comments to the disqualification of directors, which is the only aspect of the Bill that extends directly to Scotland.

The SNP supports the Bill. Our concerns are the same as those of the official Opposition: that much, much more is needed than is included. We need a much more comprehensive set of regulations, not so much to protect shareholders and directors as to protect customers, members of the public and investors from the scams that have all too often been committed by companies whose shareholders are the directors. A lot of company legislation was designed to protect investors against misaction or misconduct by company directors who are different people, but we are now looking at companies whose directors are the shareholders. They are not going to defraud themselves, but sometimes they may be willing to defraud others.

At earlier stages, I have repeatedly mentioned the conduct of a group of companies called Blackmore Bond and its directors Phillip Nunn and Patrick McCreesh. I will not go over even a fraction of their history, but why they were not at least investigated for disqualification long, long ago is beyond me. The Bill will not make it easier for such directors to be called to order, so we need legislation that fills in the gaps that are left.

As an indication of just how current such behaviour is, the BBC reported as recently as Monday that DialADeal Scotland Ltd has been fined £150,000 by the Information Commissioner’s Office for making more than half a million illegal marketing calls, many to numbers that had explicitly opted out of such calls. DialADeal Scotland Ltd used false business names in its marketing, which is illegal. It disguised the number that it was calling from so that people could not phone back to complain, which is also illegal. The calls were about non-existent green deal energy savings schemes. That is not a telecoms offence; it is fraud or attempted fraud, and very probably conspiracy to defraud.

The fine was decided in September 2021, but clearly the action by the Information Commissioner’s Office started before then. In May 2021, the directors of the company, Calum Mckay Kirkpatrick and Yvonne Mccuaig, applied to Companies House to place the company in voluntary liquidation—almost certainly with the sole purpose of avoiding the financial penalty that they knew was coming their way, because if the company were dissolved before the order was made, its directors would get off scot-free. Fortunately, the Information Commissioner’s Office was able to lodge an objection with Companies House and the voluntary strike-off action has been suspended.

The same two individuals, Kirkpatrick and Mccuaig, were also directors of DialADealUK Ltd, which was voluntarily dissolved in September 2018, immediately before DialADeal Scotland Ltd was created. Coincidentally, shortly after they had started the process of winding up DialADeal Scotland Ltd, they set up another company called Simple Lead Ltd. Not one of those companies has ever filed a set of accounts with Companies House; DialADeal Scotland’s accounts are now over a year out of date.

Why is it that company directors can repeatedly avoid any kind of scrutiny? As I have mentioned in relation to Nunn and McCreesh’s companies, they can go for years and years without filing the very limited information that they have to file at Companies House, which just does not seem able to keep up.

[Alison Thewliss (Glasgow Central) (SNP)]

My hon. Friend makes a very good point about Companies House and its limitations. Does he share my concern that the UK Government just do not care enough about Companies House and the massive loopholes that they are leaving for people to be defrauded and company directors to get away scot-free with the wrong things that they are up to?

[Peter Grant]

That would certainly be many people’s interpretation of how long it has taken the Government to take any firm action. We keep being promised a comprehensive review of company legislation; it cannot come quickly enough. I hope that we will finally see an end to the scandal of the creatures called Scottish limited partnerships, which are too often set up purely as a means to fund organised crime.

Companies House needs to be reformed and probably better resourced. As the Opposition spokesperson—the hon. Member for Manchester, Withington (Jeff Smith)—mentioned, the Bill may place additional demands on the resources of the Insolvency Service. We know that the Financial Conduct Authority needs another complete sorting out. Either it is not doing its job or it has not been asked to do the right job; it probably does not have the resources to deal with fraud on the scale that is now going on right under our nose.

Although I welcome the Bill and we will certainly not oppose it—we have supported it all the way through—we look for assurances from the Government that it is not the end of the road. It can only be allowed to be one tiny step towards finally stopping these people. I remember one of the witnesses who gave evidence to the Bill Committee describing the United Kingdom as becoming one of the go-to places of choice for international fraudsters. That is not a badge that any of us should bear with honour. If that badge is applied to the financial services industry, and to the business community in the United Kingdom generally, it will take years—decades—to get rid of and honest businesses will suffer desperately.

The Government have to start to act now. I do not know whether the Minister is in a position to tell us today when the comprehensive review of company regulation will come forward, but I certainly hope that we will see it very soon. As DialADeal’s example makes clear, even since we started our consideration of the Bill, further scams have been inflicted on innocent people throughout these islands.

Question put and agreed to.

Bill accordingly read the Third time and passed.

[Mr Deputy Speaker (Mr Nigel Evans)]

Dame Rosie Winterton will now take the Chair for our important debate on the legacy of Jo Cox.