Wilf Stevenson on ensuring the UK’s insolvency regime is fit to respond to the economic impact of Covid-19 and the recovery beyond
Businesses have faced unprecedented events during Covid-19. In responding to a public health emergency and the need to save lives, offices have been locked, shops shut, factory lines halted, and construction sites closed. As a result, GDP has plunged, and our economy is in recession. While much is being done to ameliorate the supply shock, thousands of companies now face closure and possible insolvency – with all that means for millions of workers and their families.
I welcome that the government recognises the need to support companies at risk of going under, and that it is making related changes through the Corporate Insolvency and Governance Bill. This legislation, which has its Lords Report stage today, introduces measures aimed at giving a struggling business legally-protected breathing space, while it pursues a rescue package with the assistance of a new professional adviser - the ‘monitor’.
The Bill also introduces new arrangements for restructuring companies, including a procedure for overruling any dissenting classes of creditors, and restrictions on contractual supplier termination clauses. It is a mixture of long-standing proposals, consulted on a couple of years back, that will permanently change our insolvency laws; and temporary, retrospective measures that will fall away (via a sunset clause) as the pandemic eases.
That combination, however, has caused some difficulties. This is the first major change to our insolvency regime since 2003, and the government should have known Parliament would want time to reflect on the measures. Even more so, given that the Bill includes a raft of Henry VIII powers that will need closely evaluating as the pandemic goes on - a situation that the Constitution Committee considers ‘inappropriate’, and the Delegated Powers Committee calls ‘deeply troubling’. Labour wants to work constructively with ministers to help businesses respond to the current crisis but we will not assist with an undignified power grab.
Peers have already had an impact on the government’s plans – proving that, even with the extra difficulties caused by the lockdown and hybrid operating, our detailed scrutiny improves legislation. As complex as the Bill is (47 clauses and 14 schedules), and despite a short window for consideration, it will return to the Commons with more than a hundred government amendments. Concessions have been secured on additional rights for the Pension Protection Fund, extending the time frame for temporary measures, ensuring financial debts are not afforded priority status, and the regulation of pre-pack procedures. And while the Bill is a missed opportunity to tackle wider governance and auditing failures, we have received assurances that more legislation will follow.
One major concern remains unresolved – a statutory power to ensure proper engagement with employees when companies are looking to restructure, in the same way that staff must be consulted when formal redundancy procedures kick in. It stands to reason that that restructuring could lead to companies changing the terms and conditions of staff, with their pension rights also restricted. Or employees could be sacked and offered different conditions when re-employed, as is now happening in some major companies. Labour recognises that things might need to change when a company is in trouble, but it is fairer for all concerned if staff are properly consulted and kept in the loop.
Although this Bill will leave the Lords in a much better shape, our wider concerns for businesses and workers do not leave with it. That is why we are also calling for a second wave of support to secure the economic recovery, with a green new deal for jobs, and a focused financial stimulus to get Britain moving again.
Lord Wilf Stevenson of Balmacara is a Shadow BEIS Minister in the House of Lords. He tweets @WilfStevenson
Published 23rd June 2020