Corporate Insolvency and Governance Bill

Debate between Richard Fuller and Mark Pawsey

2nd reading & 2nd reading: House of Commons
Wednesday 3rd June 2020 Commons Chamber

[Mark Pawsey (Rugby) (Con)]

It is a pleasure to follow the hon. Member for Aberavon (Stephen Kinnock) and his passionate response to the issues facing the steel industry, and also to hear the maiden speech of my hon. Friend the Member for Heywood and Middleton (Chris Clarkson), who seemed rather bothered that he was among the last of his intake to deliver his maiden speech. I would say to him there is nothing wrong in leaving the best till last.

I draw the House’s attention to my entry in the Register of Members’ Interests. I support the Bill and the measures it provides for business. I ran a business for many years before becoming to this place and recognise the many challenges that business owners and managers face at this difficult time. We were reminded of that by the Chairman of the Select Committee, who talked about the survey showing that 80% of manufacturing companies have seen orders fall, while 20% have seen their order books halved. These are substantial reductions in demand, and there are some sectors of the economy, in retail and hospitality, where trade is non-existent. However, those businesses continue to incur costs. Many of those costs have been defrayed by Government support, but that will never match the expense needed to keep a business going.

At the same time, many businesses face delayed payment by their suppliers, many of which would legitimately say that they are not able to pay their bills because they are not trading and do not have money coming in. The Select Committee recently spoke to the Small Business Commissioner, who is going to need to be very busy and active.

In the face of all this, the Government have been incredibly quick to respond with a broad range of measures. I thought it was rather churlish of the shadow Secretary of State not to acknowledge the great support that the Federation of Small Businesses, the chambers of commerce and the Institute of Directors have given to the many measures that businesses brought out at great pace. Everything was done very quickly. We need to see the Bill in the light of those measures: it is part of a package of measures available to support businesses in a very difficult time. Of course, the measures in the Bill have been introduced quickly. There has been some criticism of the amount of time it took to get the Bill ready and that we have to scrutinise it, but these are important measures that will support businesses and keep them alive. We need to get them on the statute book to enable businesses to survive these exceptional times.

It is important to look at the permanent measures and the temporary measures. On the permanent measures, the protection from creditors, which provides a breathing space in which businesses can adjust to a new reality to get provisions in place, is incredibly important. Such protections will be taken up by businesses that, but for this pandemic, would have been trading completely profitably over recent months. It is not the fault of the company or directors that they are faced with these challenges. It is of course in our interests—it is in the public interest—for us to enable company rescue and to prevent the failure of businesses that are experiencing short-term problems.

Many of the measures in the Bill have been described as heading in the direction of chapter 11 as exists in the United States. They do not go quite that far, but they are important steps in the right direction. It is important to remember that in many cases the companies that will be supported by the process we are discussing will be ones that have received Government support in recent months, with staff furloughed or the businesses having received grants—companies to which public funds have already been committed. It is important to consider the fact that the Bill will ensure that that earlier funding—that public money that has been made available—does not go to waste. It will be a huge shame if we do not protect those businesses that have had Government support over the past few months.

The Bill will introduce a moratorium during which no legal action can be taken. I discussed with a recovery specialist the appropriateness of the amount of time that the Bill gives for that, which is 20 working days—in essence, a month, for most of us—extendable to two months. He said to me that in the context of a company restructuring that is actually not a lot of time. It can of course be extended, but for a creditor of the company who is waiting to find out what the future is going to hold and how much of the debt they are due is going to be repaid, a month or two can be a pretty long time. We need to respect the position of all the people involved. During that time there will be a payment holiday during which suppliers will not be paid.

There is then, of course, the restriction on enforcement action that a creditor can bring, which I shall talk about in a moment. That provision covers landlords, who are often being painted as the villain of the piece, taking aggressive action against companies in many cases; it seems to me that in some instances landlords need to have a view about their own better interests, and it may be better for a landlord to retain a tenant in a building, continuing to trade with Government support, and to keep the tenant in there while deferring rent, rather than the landlord ending up with an empty property for which, after a period of time, they will pick up a liability for the business rates.

Under the provisions of the Bill, companies will be able to use their breathing space to re-forecast their business. One of the challenges with the loans that we have already discussed this afternoon is how someone prepares a cash-flow forecast for a business for which the previous three months have been completely out of kilter with the historic trading pattern of the business. For directors and business owners who are in that position that would be incredibly difficult. I used to run my business on an annual basis, and would prepare my business forecast in October or November ready for January trading. I knew exactly the pattern of trade for my business, which remained remarkably stable year after year. I am incredibly sorry for businesses that have to go through that right now, as it must be extremely difficult.

I wish to raise with the Minister concerns about the termination clauses and the ipso facto change, which is permanent. If a supplier ceases to supply because of impending insolvency, that action, in critical cases, could lead to failure. Having run a business, I know that if a large debt builds up with a customer and payments are weeks and months overdue, the only action that a supplier can take is to cease supply. Businesses are often reluctant to do that, but they should have more courage and confidence in what they supply to the customer and the terms and conditions of their deal.

[Richard Fuller]

My hon. Friend is making an important point. Does he share my concern that there is a certain vagueness about what continuing supply might mean for a business in crisis? Does it mean that the historic pattern of supply should be continued? Does it mean that a company that is potentially insolvent has the right to demand a much greater increase in supply? It is very unclear.

[Mark Pawsey]

That is a good point, and I hope that the Minister will consider that, because in many cases a contract has been entered into on the basis of a certain volume of business. Many businesses have contracted, so a purchasing company may not be buying the same volume. Does that provide the ability to keep the price at the original position? Price and volume go hand in hand, and there may be additional economies of scale. There are concerns, and I know that the Minister will respond.

My hon. Friend the Member for Huntingdon (Mr Djanogly) raised the issue of debts accruing because of extended payment terms. Buyers are often more interested in payment terms than the price of the product. A buyer does a great job if he manages to screw 60 or 90-day payment terms out of a supplier, rather than a particularly good deal on the product. If we can move our culture away from extended credit many of the provisions in the Bill would be rather less necessary than they are. The Minister will deal with those issues, and it is entirely right that in the Bill he guarantees that supplies that are made during the moratorium are exempt—the supplier is guaranteed to be paid once the monitor has agreed that they will continue to trade. That goes some way towards providing substantial confidence to the supplier. I am also happy with the exemption from the provisions for small companies. As the Secretary of State has said at the Dispatch Box, the usual criteria on size apply.

I want to conclude with the temporary suspension of the rules on wrongful trading, which I entirely support. Right now, business directors around the country are pretty worried about the financial viability of their businesses and their liabilities if they continue to trade, particularly if the trade position continues to worsen. The current rules are that they could be liable personally if they do not bring their business to a conclusion, even though the challenges facing those businesses are not of their making. Relaxation of those wrongful trading provisions will enable many directors across the country to sleep rather more soundly at night.