We now leave apprenticeships for the time being and turn to a familiar topic from previous engagements with enterprise and
related matters: the sad side of things when matters go wrong. I am afraid that the areas covered in this amendment are familiar territory for those who were on that journey, but I make no real apology for that, although I was hoping that my noble friend Lord Mendelsohn would be here to introduce the amendment and that I would not have to do it myself. However, I shall struggle on, and hope that I shall cover the ground, even if not as well as he does.
The first amendment is on pre-packs, which comes at a rather interesting point, because there is a press release dated today that sets out arrangements for how pre-packs will be looked at by the Government on a voluntary basis, following the review carried out by Teresa Graham in 2014. Why would we want to interfere with that? We are talking about a relatively small number; the figures that I saw in the press release suggested that about 20,000 businesses went through insolvency in a year, with less than 5% involved in pre-packs. Doing maths in my head, I think that is about 1,000 instances of pre-pack in a year, so it is not a lot.
The issue with pre-packs, which is worth repeating, is that uniquely in the British insolvency system—the British insolvency system is largely admired around the world, so we do not want to attack it in generality—is that creditors have a pretty bad deal. We have argued in Committee and on the Floor of the House that more protection should be given to creditors when a pre-pack is considered. The argument made by my noble friend Lord Mitchell last time was that you can have a situation whereby, on a Friday afternoon, a company known as Smith and Jones is operating, but by Monday morning it has become Jones and Smith, with the same people running it and many of the same directors and perhaps even the same bank. But the creditors—and probably one of those creditors will be HMRC, along with a few other people—have been dumped.
The argument in favour is that businesses that have a future will continue; the bad news is that those who are involved in supporting the previous business, which is going to disappear—particularly trade suppliers and others who might be on credit terms with Smith and Jones—will not be able to pursue Jones and Smith, because it is a different company. Does that matter? I think it probably does because the creditors will probably be small companies employing people. If they are suffering, the economy is suffering as well, so there is an issue there.
6.30 pm
The question before us is whether the proposals announced today will be sufficient. Duncan Grubb, a director of Pre-Pack Pool Limited, the body that will be responsible for what will be a voluntary system, said:
“Pre-pack administrations are an important part of the economy, helping rescue businesses and jobs. Business owners and creditors, however, need to trust and have confidence in the process”.
You can say that again. He argues:
“The reforms strike a balance between transparency and the discretion needed for business and job rescue. While the Pool is voluntary and its opinions are not binding, it will reassure creditors about the reasonableness of the pre-pack transaction and its
justification in the circumstances. And with enhanced guidance for directors on marketing and valuations, creditors can have more confidence that a pre-pack sale achieves the best deal for them too. As a whole, today’s reforms will further boost confidence the UK’s internationally-admired insolvency regime”.
I do not know about that. I think it is a bit vainglorious. I do not think it gets to the bottom of the point that I have been trying to make.
Our amendment goes through in some detail the things that we think ought to be in place in order to establish a proper pre-pack system. It is not unreasonable that people involved in pre-pack proceedings advising this new organisation should not subsequently have a role in any sale. We think that the administrator or any administration involved in this must make provision for at least three working days’ notice to be given to creditors of the terms of any proposed sale, if there has been no open marketing of the assets, which there rarely is. We have a proposal that we think would be useful to consider. Given that the Minister is just announcing a different system, I do not expect she is going to accept it with open arms, but we think it is important that it be considered.
The other amendments in this group involve insolvency protection for small business contracts. Amendment 52ZBA is a manuscript amendment because there were difficulties in getting the wording correct. It involves a situation on a relatively small scale, but it has resonance with a recent company which went into administration. It was rather celebrated because a lot of employees were involved and it went down very quickly. It turned out, I think I am right in saying, that part of the reason for the speed with which the employees were dismissed was that if the company were clever in its timing, the cost of the statutory redundancy fell to the Government, not the shareholders. There is a gap, a loop hole, here which it would be helpful if the Minister could take away and consider because a measure may need to be introduced, whether in this Bill or another, which nails it. It would be quite wrong for the owners of a company to benefit simply because of bad drafting in previous legislation. I think that we agree that if you are in market capitalism, you expect to invest and make a return in the good times, but if there are bad times, you have to take the hit. I sure that everyone would agree that if you can avoid the hit by offloading it to someone else, that is not quite the same thing as taking a hit because of bad practice. There may be other issues that are raised by this, but if it can be taken back and looked at, that would be very good.
The third amendment in this group is Amendment 52ZD, which arose from discussions we had on the Small Business, Enterprise and Employment Bill about whether it would be possible to take elements of the Chapter 11 system in the United States into British insolvency law. This is not attempting to take in the entire American version of insolvency arrangements, because we do not think that they are appropriate for the way we do things in Britain, so let us not get involved in that, but there are issues, particularly in high-tech small businesses, where it is sometimes quite difficult to see why businesses collapse as quickly as they do—or can do—in Britain.
The great advantage of Chapter 11 in America is its ability to assume that a business should continue under the protection of the courts—in the case of America, but we would suggest under the protection of insolvency practitioners—for a limited period while those who have the best interests of the company at heart attempt to get it back on to a more workable basis. Our knowledge of this is not extensive but the experience I have been able to pick up on is that the problems mainly emerge where you have a single creditor, usually a bank, which sees physical assets and does not wish to prolong the possibility that the company might get itself sorted out over time. In an environment, particularly in this economy, where there is not that much additional support for small businesses and growing businesses, where there is not a lot of mezzanine finance, that is obviously a very difficult situation for them.
Our proposal here is a new idea called “debtor in possession”, which suggests that where you have certain limited and restricted issues, elements of the Chapter 11 administration in America could be brought in here so that businesses which have the chance to do so, particularly where they have assets that would otherwise be seized by an aggressive creditor, are able to use that to try to lever out additional resourcing and get themselves going. These are interesting ideas, which we hope will grow the economy and be effective in terms of enterprise. We recommend them and I beg to move.