My Lords, other noble Lords speaking in this debate have more extensive knowledge of the history behind these regulations. Although, like many members of the public, I might have spotted a sale of a business to a connected person and wondered whether it was wholly fair, I became engaged with this only relatively recently: when the opportunity presented itself during the passage of the Corporate Insolvency and Governance Act and the noble Baroness, Lady Neville-Rolfe, revived the issue from the Small Business, Enterprise and Employment Act. Since then the noble Lord, Lord Hodgson, has kept an eagle eye on it. He has been keeping our impromptu group of CIG veterans informed since then.
In addition to the persistence of the noble Lord, Lord Hodgson, our little cross-party group has benefited from the varied professional expertise of the noble Lords the Minister referenced, and the noble Lords, Lord Mendelsohn and Lord Vaux, and the noble Baroness, Lady Neville-Rolfe, have ably demonstrated
that in their contributions today. Like them, I am pleased that we have got to where we are, but I agree that this may be part of a continuing journey. I also thank the Minister for meetings and bringing forward these regulations. It is a quirk of the speaking order that I get to speak after those other noble Lords, which leaves everything already well covered.
These regulations introduce a new requirement for an opinion by an evaluator to say whether a sale to a connected party is “reasonable” in all the circumstances. This requirement will come into play frequently. As quoted in Accountancy Age last October, Blair Nimmo, the head of restructuring at KPMG, said:
“When a company goes into insolvency and you need to have a fairly quick sale of the business, the person(s) with the most knowledge of a business and its operation are the existing directors. They are the most likely people to have arranged the pre-pack or at least be part of it, even if it is being funded or orchestrated by an independent party. Scenarios whereby there are zero connections to the previous directors are fairly few.”
That was regarding pre-pack procedures, but evaluators will also come into play in any rapid—that is, within eight weeks—connected person sale through ordinary administration procedures.
I welcome the compulsory aspect of the report because the previous measure of consulting the Pre Pack Pool went greatly underused: as the noble Lord, Lord Hodgson, has already noted, there were only 23 referrals out of 260 connected person pre-packs in 2019. It is now envisaged that the Pre Pack Pool, or members thereof, might be used to obtain the independent opinion required, but it is already possible to find evaluators advertising online. Ones I found appeared to have relevant experience, and perhaps it is a nice job for retired insolvency practitioners, who were the ones that I found.
However, the main criticism levelled against the original proposal was the self-certification nature of the credentials of the evaluators: they need only believe that they have the requisite knowledge and experience to provide the report. That is now bolstered by the need for indemnity insurance, which presumably means that the insurance company must consider that they have the credentials to be an insurable risk—or that the person pays a high enough premium to persuade the insurance company to take the risk. The fact that the insurance premium details, including the insurer and the amount insured, must be disclosed adds to the reassurance, although I am still a little disconcerted with it as the mechanism.
There is still disquiet in some quarters and, as ever, time will tell. The noble Lords, Lord Mendelsohn and Lord Vaux, and other noble Baronesses and noble Lords, have already highlighted several of these—notably, opinion shopping is still not resolved. Secured lenders should perhaps be connected, as the noble Lord, Lord Mendelsohn, has suggested—the administrator applying for the evaluation would solve the opinion shopping point. I also note that the difference between “substantial” and “significant” may also need resolution in due course—as well as the relationship of the evaluator to the company.
That said, I am reassured—I think—in that I now understand that we have regulations which can be amended in future and, therefore, these issues may end up being resolved in due course. However, it would be nice to have the confirmation that the noble Lord, Lord Vaux, has indicated he would like—namely, that June is not the last say and now that the regulations exist, they can continue to be tweaked as more evidence comes to light.
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