My Lords, I am very concerned about the pre-pack administration idea. I understand that it has a superficial appeal in terms of saving jobs but the reality is that jobs can also be lost among the creditors. The appearance is that jobs may have been saved but very often the creditors—the small businesses that are the suppliers of the company in pre-pack administration—can be out of work. They are below the water—the part of the iceberg that you do not see. The noble Lord said that creditors have a bad deal in a pre-pack. They do not have a bad deal; they have no deal at all. Not only do they have no deal at all but the pension obligations pass to the pension regulator, which in turn is passed on to other firms.
In my experience of pre-pack administration, the arrangements are, frankly, utterly superficial and exceptionally difficult to police in terms of whether or not a fair value is being achieved for the assets that are being sold. I am not clear yet that we have got to the bottom of what I call repetitive pre-packs, in that directors and managers who are not very good businessmen go through the pre-pack arrangements at reasonably frequent intervals. I hope that this is something that the Small Business Commissioner might be able to think about because I think he will have some role to play here and we did not pick up on this point when we were discussing that part of the Bill.
I have not seen the new proposals that have been produced today but I think that the issue that the noble Lord has raised in Amendment 52ZA is something that we need to consider very carefully. I have a couple of questions for him about his amendments. Amendment 52ZA(a) states that,
“the owners of the company must approach the company’s investors for approval prior to entering any pre-pack proceedings”.
What is the difference between an owner and an investor? The investors own the company. I am not quite clear what the distinction is. I may be missing the point about what the distinction is between those two categories in terms of what the noble Lord is seeking to achieve, but I understand the force of some of the other points he is making in Amendment 52ZA(b), (c) and (d), and I think they are of interest.
Under Amendment 52ZD, which concerns the “debtor in possession”, one issue is how the company continues to trade in the circumstances, because it has to take on new obligations. One of the things most feared by company directors, and quite rightly, is trading while insolvent. Therefore, will Amendment 52ZD give directors protection because as you approach the edge of the company’s solvency, your lawyers, advisers and accountants will say, “If you cannot prove that you had thought that you could make good and pay the creditors as they fall due, you are committing a criminal offence and the law takes a very serious view of that”? Perhaps the noble Lord could explain a bit more in a minute as to how that protection is going to be provided under Amendment 52ZD and, in particular, where the company is expected to continue, how security is going to be given to suppliers working for the company and providing further services or goods for which they may or may not get paid at some date in future.
However, there is a central point in Amendment 52ZA. Notwithstanding what may have been proposed today under the new regulations, we have been slightly seduced by the attraction of pre-packs. I think that the hidden damage that they do to a lot of suppliers and smaller companies is something that we have tended to overlook. The noble Lord made an interesting point in the amendment, but there are some issues to be clarified.