Insolvency Law and Director Disqualifications

Debate between Seema Malhotra and John McDonnell

Wednesday 14th June 2023 Westminster Hall

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

It is a pleasure to serve under your chairship, Ms Fovargue. I also congratulate my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey) on securing the debate and on her excellent opening speech. I thank my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and the hon. Member for Gordon (Richard Thomson) for their important contributions on the chaos of regulatory bodies, and what really came through was the ongoing lack of a culture of challenge, and the links to the Economic Crime and Corporate Transparency Bill, which—I will speak to this later—we were keen for the Government to move much further on to tackle some of the weak areas, particularly phoenixing.

It is worth referencing that rising insolvencies, if we are talking about insolvency law and director disqualifications, also show an environment in which businesses are being hit hard. Many businesses are under strain due to the way in which they have been hit by the cost of doing business crisis, the supply chain crisis, the cost of living crisis, late payments and rising inflation and interest rates, with a Government that many businesses tell me is not on their side.

Monthly insolvencies hit record levels earlier this year in February and March. In March, there were almost 2,500 insolvencies, setting new records. However, alongside companies and directors who find themselves subject to insolvency despite their best efforts to survive, we know that there are business owners who abuse the process around administration and insolvency, with poor governance and stripping of assets. They incur high levels of debt and then dissolve the company, leaving workers and creditors in the lurch, and even denying workers the value of their outstanding pay and redundancy.

I thank the Bakers, Food and Allied Workers Union for its briefing and the caterers of Dawnfresh Foods and Orchard House Foods, which my hon. Friend the Member for Salford and Eccles also spoke about.

[John McDonnell]

We have had several representations from the bakers union over a period of time. It looks as though it is a sector where the strategy of insolvency has been used consistently. I wonder whether there could be a specific examination by the Government of this particular sector, because over the past eight or nine years we have had a pattern of behaviour, and it is one that is becoming almost endemic in the baking industry.

[Seema Malhotra]

I thank my right hon. Friend for his contribution. I agree with putting that question to the Minister and asking for a specific response.

The other issue is that rogue directors are able to walk away with seeming impunity. Some Government steps have been brought forward, and they have been important, but clearly they have not been enough—certainly not for the scale of the challenge. Recent public cases have highlighted the need for urgent action, but where steps have been taken by the Government there seems to be a lack of will to really grasp the challenges. I make reference to insolvency powers and audit and corporate governance reform here.

As one example, in 2021, clauses 2 and 3 of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 introduced powers to enable the Insolvency Service to investigate directors of dissolved companies—measures that were first proposed in 2018. The Government’s main policy objectives were, first, to ensure that public concerns that rogue directors who abuse a company and insolvency law can be investigated and held accountable and, secondly, to provide a deterrent for company directors who may use the dissolution of the company to evade their responsibility to repay bounce back loans. Since the Bill became an Act, data showed to the Insolvency Service has focused mainly on the second policy objective, a point made effectively by my right hon. Friend the Member for Hayes and Harlington. In December ’21, the Insolvency Service gained powers to disqualify directors of dissolved companies, and, since 2022-23, just 25 directors of dissolved companies have been disqualified.

Many of the issues being talked about today were laid bare for all to see during the Carillion collapse in early 2018. Carillion had ostensibly been financially healthy. Its collapse saw more than 3,000 jobs lost, 450 public sector projects, including hospitals, schools and prisons, plunged into crisis and a company in billions of pounds of debt. In Hounslow, our leisure services were affected, and saved only by the council stepping in. Approximately 11,000 employees lost their jobs at British Home Stores, with a pension deficit of £571 million. These issues not only affect those close to the cases but cost the taxpayer, too. The National Audit Office reported that the Carillion affair cost the taxpayer at least £148 million, including £65 million in redundancy payments. Since the Government promised action on reforming corporate governance in the wake of the Carillion collapse, it took until May 2022 for a White Paper to emerge, and only in the past few weeks has the Financial Reporting Council issued its own consultation in response to the White Paper.

Let me say a few words on audit and corporate governance reform. This is an important policy space, in which reforms need to be robust for red flags to be seen early. An annual audit is a statutory requirement for listed and large companies. The purpose is to provide assurance to shareholders that financial statements give a true and fair view of a company. Good audit protects not just shareholders, but employees, pension holders, suppliers, customers and the wider community. At the broadest level, it serves the public interest by underpinning transparency and integrity in business.

Reform of the audit sector is clearly necessary and long overdue. The scandals we have heard about have damaged the reputation of the audit sector and the professionals who work in it. The Financial Reporting Council’s finding in December 2020 that over 80% of audits reviewed in the previous two years required improvement indicates the scale of the challenge. It also raised the issue of the importance of a challenge culture. Despite some improvements, there is still huge urgency, and it seems that the Government are dragging their feet. We are still waiting for legislation. The accounting and audit professions, the business community and the trade unions are all clear that change must come, and that the new audit, reporting and governance authority, which will step in when directors breach their duties, must be put on a clear statutory footing and given new powers that can only be conferred through legislation. I would be grateful for the Minister’s response to questions about plans for reform of section 172 of the Companies Act 2006 and directors’ duties.

I have some final remarks on the effectiveness of insolvency law and the director disqualification framework. R3 members note that for many years, regardless of the number of insolvency appointments and the number of reports submitted highlighting director behaviours that could warrant disqualification, broadly the same number of directors seem to have been disqualified each year, though there was a notable drop post pandemic. Are those numbers driven by resourcing constraints in the Insolvency Service, rather than assessment of director conduct?

Secondly, the annual enforcement statistics published this year indicate that there have been no disqualifications for phoenixing or insolvent trading. I would be grateful for the Minister’s view on enabling greater use of section 216 of the Insolvency Act 1986, so that it can be applied not only to companies in liquidation, but also to those that enter insolvent administration or are dissolved while the balance sheet is insolvent. That would accord with the Government’s recent extension of the director disqualification regime to dissolved companies.

During the recent passage through the Commons of the Economic Crime and Corporate Transparency Bill, we tabled amendments that would have improved the insolvency regime, including by tackling the practice of phoenixing, but the Government voted against them all. I hope that we can come back to some of those measures.

There is not just a failure to take this issue seriously, but a broader pattern of failing working people, who are so often left in the lurch. For too long, our economy has been ravaged by dire productivity, insecurity and stagnant pay. Government and business need to work together on a proper, pro-business, pro-worker, long-term plan for industry and the economy. Labour is committed to creating jobs that provide security, treat workers fairly and pay a decent wage through our new deal for working people—the biggest upgrade to workers’ rights in a generation. I would welcome assurances from the Minister that there will be progress on audit and corporate governance reform, and a further strengthening of the insolvency and director disqualification regime—two vital tools for keeping enterprise, employment and the economy protected from rogue directors, and for preventing the huge scandals that we have seen from ever happening again.

Nationality and Borders Bill

Debate between Seema Malhotra and John McDonnell

Consideration of Lords amendments
Tuesday 22nd March 2022 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

When people look back on this debate, I think it will be in the same way that we look back on debates around the Poor Law. They tried to solve poverty in those times by being cruel to the poor; I think that is what we are trying to do here. We are not addressing the real issues we face.

I fully concur with everything the right hon. Member for Haltemprice and Howden (Mr Davis) said. I find it bizarre that we are even considering offshoring at this point in time; I think we all know that, practically, it is never going to come off—it is never going to happen—and this is a wasted debate.

I want to concentrate on employment rights. In my constituency, I have two detention centres, which house nearly 1,000 people. Most of them will be detained, but will then come into the community, and will eventually be allowed to remain. There are 1,700 asylum seekers in hotels in my constituency as well. They are not a burden—I welcome them. They may be a financial burden on local authorities and others—central Government need to support them—but, socially and emotionally, I welcome them completely.

The problem that these people have is that, most of the time, they are trapped in the system. Hon. Members just need to look at the figures from their own casework. Cases take at least six months or a year; I have dealt with cases that have been waiting for four or five years before there is a result. In the meantime, people are denied the right to earn a living. They are told to live off £5.40 a day, and that means they live in poverty.

Someone mentioned Syrian asylum seekers; those I have met are some of the most qualified people I have ever met. They have gone through universities and training; they have skills that they could use to give the country so much, and yet they are trapped in the system, living in poverty. And, tragically, what does living in poverty do, in some instances? People try different angles. Sometimes, unfortunately, they end up in criminality. This system, which refuses to allow people to exercise their skills and devote their talents to our community, forces them into poverty and, in some instances, criminality. All Lords amendment 7 said was, “Just allow these people to work—allow them to support themselves and their families, and to give something back to this country.”

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

As my constituency neighbour, my right hon. Friend will be aware of the number of asylum seekers in Feltham and Heston who face the challenges that he has outlined. As well as being more humane, allowing people to work would also allow them to make a financial contribution. He will have heard stories similar to those I have—of young people with degrees, who have been tortured, who have fled for their lives, and want nothing more than to start their lives again in a country that they want to call home.

[John McDonnell]

More recently, a calculation was made of the sort of financial contribution that would be made to the country if we allowed people to work six months after they applied for asylum. At least £200 million would be put into our economy. We are denying ourselves these people’s ability to create wealth. I went through the same process when refugee Ugandan families turned up here in the time of Idi Amin; hon. Members may remember that. I have to tell the hon. Member for Ruislip, Northwood and Pinner (David Simmonds) that Hillingdon, then under the leadership of Terry Dicks, whom the hon. Gentleman will recall, was not kind to those refugees at the time. However, eventually those Ugandan Asians settled, and they made a huge contribution to this society, including a massive economic contribution, because we allowed them to use their talents and take up employment. Often, they created businesses. They made a great contribution, certainly in west London, as my hon. Friend the Member for Feltham and Heston (Seema Malhotra) can tell us.

I cannot understand the rationale for the Government’s approach. There is an argument that allowing employment will somehow add to the pull factor, but having to live off £5.40 a day is not the sort of pull factor that will attract millions to this country. We should look at the issue rationally, and recognise that the large number of people trapped in this poverty trap could contribute so much. That is why Lords amendment 7 needs to be looked at more rationally. Suffering cannot be part of our policy for dealing with the world refugee crisis—a crisis that will, as a result of climate change and other matters, become worse. We have to recognise that there will be movements of people. We have to accommodate that, and that is partly about making sure that those people are welcomed in a way that allows them to make an effective contribution to our society.

European Union (Withdrawal) Act

Debate between Seema Malhotra and John McDonnell

Thursday 6th December 2018 Commons Chamber

[John McDonnell]

What has happened is clear: the deal has not convinced the Government side and certainly has not convinced the people. It has not convinced a majority in the House so far.

The Government analysis estimated that the impact of trade barriers alone could mean an average drop in wages of 3%—£800 a year, in today’s terms. The regional growth impact is worst in our exporting regions such as the north-east and the west midlands. Other organisations have come to similar conclusions. The Bank of England said that GDP would be almost 4% lower by the end of 2023. The National Institute of Economic and Social Research put the damage at £100 billion in real terms.

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

Does my right hon. Friend agree that the uncertainty about EU free trade agreements, which currently cover our trade relations with more than 70 countries, is set to be hugely damaging to businesses up and down the country? They are currently worth more than £150 billion.

Budget Resolutions

Debate between Seema Malhotra and John McDonnell

Thursday 9th March 2017 Commons Chamber

[John McDonnell]

That is a process of bringing MPs together as individuals, not as party representatives—let us be absolutely clear about that. We look forward to any proposals that come forward for consideration from any source. If we can find a practical way forward, we certainly will.

The most important thing is that we have an emergency at the moment. We need £2 billion now, not over three years, because people are suffering now. Families are imploding. I felt a sense of relief when it was trailed that we were going to get £2 billion. I then felt extreme disappointment when we were then told it would be £2 billion over three years. That was never mentioned in the press releases before the announcement.

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

Does my right hon. Gentleman agree that the January figures for those waiting more than four hours for accident and emergency, which at 86% are the worst on record, are another example of how our health and social care systems are at crisis point?

[John McDonnell]

As always, my hon. Friend has pre-empted my remarks. Not only did the Government fail to address social care yesterday, but they failed to address in any way the crisis in our NHS. It was completely ignored.

Ahead of the autumn statement, Labour and others were warning that the NHS was in crisis. It was in crisis before the winter, but the Chancellor could not find a single penny for the NHS in the autumn statement. The Royal College of Nursing now says that the NHS is in its worst crisis ever. Ahead of the Budget, the British Medical Association called for another £10 billion for the NHS. As my hon. Friend has just said, A&E waiting times have today got worse again—more people are waiting longer. It is astonishing that there was a complete failure on the part of the Chancellor in the Budget to recognise the scale of the crisis that our hospitals and doctors face. It is a crisis that the Government created by cuts.

Instead, we have a £100 million fund to enable GPs to triage in accident and emergency. The capital spend will build rooms for GPs in hospitals with no GPs to staff them, because no revenue funding is associated with the proposal.

Autumn Statement Distributional Analysis, Universal Credit and ESA

Debate between Seema Malhotra and John McDonnell

Wednesday 16th November 2016 Commons Chamber

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

My right hon. Friend is laying out a powerful case for the need to make some very different decisions next week in the interest of all our futures. There is clearly a combined moral and economic rationale for an urgent focus on disability employment. The 30% disability employment gap makes that even more important. Does my right hon. Friend agree that people with disabilities and their families deserve so much more from the Government, who should be on their side, rather than pursuing a strategy characterised by cuts to ESA, the tragic failure of work capability assessments and no strategy for fairness?

[John McDonnell]

I fully agree with my hon. Friend. There is a week in which we can overturn at least an element of that brutality. This week, we need to seize upon the chance as best we can, across parties, to deliver change.

From our privileged position in this House, I firmly believe that before we consider cuts to basic support for low earners and disabled people, we have a moral duty, as my hon. Friend said, to fully appreciate the plight of many of our fellow citizens and the impact that any changes that are forced upon them could have. There are some basic facts that we need to face up to—basic facts that depict the harsh reality of the lives of so many members of our community. Nearly 4 million of our children are living in poverty. The scandal is that two thirds of them live in families where someone is working. Thanks to low wages, zero-hours contracts and forced or bogus self-employment, which has been exposed today, the promise that work will lift people out of poverty is a broken one for many.

If a basic responsibility of the Government is to ensure that their population is adequately fed and housed, they are failing. A million emergency food parcels were given out by food banks last year to families who did not have sufficient income to feed themselves. The latest reports confirm that the numbers are rising. This year, 200,000 children in our country will be dependent on a food bank to get a decent meal at Christmas. One survey reported that more than 20% of parents had regularly not eaten so that their children could eat. Others report the frequent choice between eating and heating. This is 2016.

On the duty of the Government to ensure that people are adequately housed, they are failing again. Rough sleeping has doubled in recent years. The equivalent of 100 households a day are evicted from rented homes—a near-record 40,000 in the year to date. Some 1.2 million households are stuck on council housing waiting lists. In my constituency tonight, there will be families sleeping in beds in sheds that have been rented to them.

As for the Government’s responsibility for disabled people, as the UN report concisely summed it up, the Government have—and I quote—systematically or gravely violated the rights of disabled people. Independent research suggested that Government efforts to push people off claiming disability benefits have been associated with more than 500 people committing suicide in three years.

Three years ago, I led a debate following the presentation of the War on Welfare petition, which highlighted the call for an overall impact assessment of the Government’s policies on disabled people. I cited the immense human suffering caused by the brutal implementation of the work capability assessment and the latest round of cuts to benefits and care services. I cited examples of people who had tragically taken their own lives in despair following the WCA and the penalisation through sanctions. We now know that those suicides were not isolated examples, but that there have been hundreds.

TfL (Funding and Station Staffing)

Debate between Seema Malhotra and John McDonnell

Wednesday 15th January 2014 Westminster Hall

[John McDonnell]

My hon. Friend is experienced and knows what it is like to deal with customers face to face on the underground. He knows the insecurities of travellers and staff and outlines a recent, concrete example of what can happen.

Let me finish what Bob Crow said:

“Not only are a thousand posts on the line but staff remaining are going to be forced through the humiliating and degrading experience of re-applying for their own jobs—the same staff who have been hailed as heroes when the tube has faced emergency situations”,

which echoes my hon. Friend’s point. Bob Crow continued:

“That is a kick in the teeth for the loyal and experienced tube workforce who have kept services running safely and efficiently under constant pressure from weight of demand and a creaking and under-resourced infrastructure.”

He also said—I add this as it may prevent some carping or questions later—that before anyone starts

“shouting the odds they should take note of the fact that the turn out in this ballot was higher than the last mayoral and GLA elections and the vote in favour massively outstrips anything that those same politicians can even dream of in terms of a popular mandate.”

Those are the views of rank and file tube workers.

On 9 January, the TSSA issued the following press release:

“A strike ballot of front line station staff was called today by the TSSA rail union in protest at plans to close 260 Tube ticket offices and axe nearly 1,000 jobs.

It gave London Underground seven days notice of a ballot which will start next Friday, January 17 and end on January 27. Any subsequent industrial action could start from February 3 in the event of a yes vote.

Manuel Cortes, general secretary, blamed the ballot on the ‘reckless’ behaviour of London Mayor Boris Johnson who he said was refusing to meet the unions over their genuine fears for safety and security with the wholesale closure of every ticket office.

‘It was the Mayor who came into office in 2008 with a firm pledge to keep open every ticket office on the grounds of keeping passengers safe and secure at all times.

‘Now he wants to scrap the lot, claiming there will be no problems because he will keep staff on station platforms, those that keep their jobs, that is.

‘He wants to scrap permanent station supervisors who are in charge of evacuations and replace them with mobile supervisors who will travel from station to station.

‘But he will not answer the question; “How mobile can you be if all lines are in lockdown because of an emergency and nothing is moving whatsoever?”’.

He called on the Mayor to end his six year ban on meeting the rail unions”—

he has refused to meet them for six years!—

“and to sit down with them instead to work out a solution which would guarantee ‘the safety and protection of all passengers at all times’.”

I repeat what the Mayor said in 2008, which was very specific. He said that there was no

“financial, strategic or common sense”

in the closures that were threatened at the time, and promised:

“We will halt all such ticket office closures immediately”—

That is a broken promise. It is a broken promise not only to the staff, but to the travelling passengers.

Passengers and the general public are anxious. A large poll—a face-to-face survey by Survation of 1,027 London underground users in 23 tube stations—showed widespread concern about the threat of ticket office closures: 71% of London Underground passengers interviewed said that they were “quite concerned” or “very concerned” about their station no longer having staffed ticket offices. Concerns were particularly strong among tourists travelling on the underground, with 81% saying that they would be “quite” or “very concerned” in the event of ticket office closures—no doubt because of their reliance on the offices for general information.

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

My hon. Friend has called a very important debate today on something that is affecting all our constituents who use the underground. Does he share my particular concern for women who are travelling, perhaps to and from work late at night or with their children? They will not have a sense of safety and security in underground stations and on platforms. They need to have that reassurance that it is safe to travel and that they will have support when they need it, should anything happen.

[John McDonnell]

Safety and security is a critical issue. Later, I will come on to some of the statistics that we have looked at, including research specific to women.

Perhaps the Minister will pass back to the Mayor of London that the same Survation survey found that 49% of underground passengers who were resident in Greater London would be “much less likely” or “somewhat less likely” to vote for a candidate for Mayor of London who went back on a promise to keep ticket offices open. That is what Boris Johnson pledged in his 2008 manifesto. That figure increased to 56% among those who voted for Boris Johnson in the previous election. People feel strongly, and they will be willing to express their concerns at the ballot box in due course. There is also a petition; 20,000 people have signed a 38 Degrees e-petition calling on the Mayor to keep his manifesto promise.

Political opposition to the cuts includes Labour and the Greens, and there has been cross-party support, including from some Liberal Democrat MPs, for early-day motion 787 proposed by my hon. Friend the Member for Islington North (Jeremy Corbyn). That sets out the detail of the cuts in an objective fashion, but its conclusion is to call on the Mayor of London to reconsider his proposals and to keep the ticket offices open. One Liberal withdrew his name in due course, but that was a tube line to Damascus conversion as a result of promotion to ministerial office. [Interruption.] I cannot believe that others would do that.

For opposition from the wider community, let me run through some of the broad range of groups that have expressed concerns. The cuts have been opposed by the TUC and by disability organisations, in particular Transport for All, which is the voice for disabled people in London on transport issues, and Disabled People Against Cuts. The National Pensioners Convention has now expressed its concern about the implications of the cuts.

Threats to passenger services are real. Let me run through what the cuts mean in concrete terms. Now, every passenger may depend on staffed ticket offices when the machines are out of order or their Oyster card has stopped working. Under the Mayor’s plans, passengers will have nowhere to turn during such everyday situations. They will have to rely on their Oyster card or contactless payment cards to travel, or they will have to pay higher prices for paper tickets. Passengers will have to buy tickets online, if they can, or at shops, and they will have to find the correct ticket on the self-service machines. Experienced tube workers have said clearly that there are real fears that errors or problems with tickets will no longer be resolved at stations, because there will be no ticket office and of course the shops that sell tickets cannot help with such problems—nor is that their role.