Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill
Public Bill Committee, 6 July 2021.
Christina Rees (Labour/Co-operative, Neath)
We are now sitting in public and the proceedings are being broadcast. Before we begin, I have a few preliminary announcements. Members will understand the need to respect social distancing guidance. In line with the Commission’s decision, face coverings should be worn in Committee unless Members are speaking or they are medically exempt. Hansard colleagues would be grateful if Members could email their speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent. Tea and coffee are not allowed during sittings.
We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication and a motion to allow us to deliberate in private about our questions before the oral evidence session. In view of the time available, I really hope that we can take those matters forward without debate. I call the Minister to move the programme motion standing in his name, which was discussed yesterday by the programming sub-committee for the Bill.
Examination of Witness
Christina Rees (Labour/Co-operative, Neath)
We are now sitting in public again, and the proceedings are being broadcast. Before we start hearing from the witnesses, do any Members wish to make any declaration of interest in connection with the Bill?
Peter Grant (Scottish National Party, Glenrothes)
One of the witnesses this afternoon is from the Chartered Institute of Public Finance and Accountancy. I am a member of that institute.
Christina Rees (Labour/Co-operative, Neath)
Q So noted. We will now hear oral evidence from Stephen Pegge, managing director, commercial finance, at UK Finance. Before calling the first Member to ask a question, I should like to remind all Members that questions should be limited to matters within the scope of the Bill and that we must stick to the timings in the programme motion the Committee has agreed. For this session, we have until 10.30 am.
Christina Rees (Labour/Co-operative, Neath)
Q Do you have any general remarks about the Bill?
Christina Rees (Labour/Co-operative, Neath)
Thank you, Mr Pegge. We will now take questions from members of the Committee, if you would be so kind as to answer. The Opposition traditionally go first, so I call Jeff Smith.
Jeff Smith (Labour, Manchester, Withington)
Hi, and thanks for coming to give evidence. I am just trying to get a picture of the scale of the problem. To what extent do you think this is a problem? Are the measures in this legislation adequate to deal with the scale of the problem that you think is out thereQ ?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Thank you for your evidence today, Mr Pegge. I understand that you helped to establish the covid-19 lending schemes. The Government have suggested that some companies have been dissolved to avoid paying back Government loans given as coronavirus support. Have you seen any evidence of that? If these measures go through, do you believe, from your experience and what you have seen, that the Insolvency Service is adequately resourced to deal with the expansion of powers it would have through the BillQ ?
Peter Grant (Scottish National Party, Glenrothes)
Good morning, Mr Pegge. You have described the loophole of company directors being able to dissolve the company in order to avoid their liabilities. Another way that directors can act is to set up two or three companies, transfer all the assets out of a company, dissolve the company with the debts and retain the companies with the assets. Is that a loophole that will still exist, even if the Bill goes through? If that loophole continues, is there a danger that that then becomes the route of choice for dodgy directors to avoid their liabilitiesQ ?
Mick Whitley (Labour, Birkenhead)
Welcome, Mr Pegge. Do the Government proposals address all the problems that have been identified with the dissolution process in relation to liabilities and directors’ conduct?Q
Jeff Smith (Labour, Manchester, Withington)
Q I am trying to get a picture of the scale of the issue. You mentioned that the Insolvency Service was involved in about 1,0000 cases in the last year. I appreciate that you said that that is a low number for the year. Then you said that there may be around 2,000 cases where the powers to investigate currently do not exist. That sounds like a significant increase in work for the Insolvency Service, and I wonder whether you think that it will be able to cope.
Marie Rimmer (Labour, St Helens South and Whiston)
Good morning, Mr Pegge. Clause 2(14) states that the provisionsQ
“have effect in relation to conduct…occurring, and in relation to companies dissolved, at any time before, as well as after, the passing of this Act.”
Do you support making these provisions retrospective and, if so, how should the Insolvency Service make use of these retrospective powers?
Paul Scully (Conservative, Sutton and Cheam)
Q It is good to see you again, Stephen. That is an interesting point about the retrospective nature of the measure, given what you were saying about businesses taking on more debt throughout the pandemic. Obviously, the insolvency practitioners will work through things, as you have rightly said, in order of public interest. What do you think they may look to do to give lenders confidence, by approaching the pandemic response finance first?
Paul Scully (Conservative, Sutton and Cheam)
Q It is a complicated scene, as you say, and this is only one part of it. I think you are, therefore, suggesting that strengthening the regime in this way will give further confidence to lenders, and especially SME companies within the supply chains.
Paul Scully (Conservative, Sutton and Cheam)
Q Finally, what effect do you think there would be on lending if this regime did not come into place or the loophole were not closed? Would there be a chilling effect?
Peter Grant (Scottish National Party, Glenrothes)
Q Good morning again, Mr Pegge. I apologise because I think I mispronounced your name earlier because I tried to read it without my glasses on. In an earlier answer, you referred to the retrospective nature of parts of the Bill. You indicated that you supported them. In particular, you referred to the fact that the Government had made it clear since 2018 that the legislation was coming.
Clearly, we are not creating a new offence that was not illegal at the time. We are considering legislation to make it easier for the authorities to act against people who may have committed offences, which I think is an important distinction. Even given that, is there an argument that the retrospective power should apply only to the date when the Government first published their proposals to legislate? Would you still support the Insolvency Service if it wanted to take action in relation to things that had happened in, say, 2015 or 2016? Would you have any concerns about that?
Christina Rees (Labour/Co-operative, Neath)
Thank you for joining us today, Mr Pegge, and taking the time to give evidence to the Committee. We are grateful.
We should be moving on to the next panel now but apparently the next witness is not ready. I will adjourn the Committee for a short time. We will reconvene when we have the next witness online. Thank you.
Examination of witness
Christina Rees (Labour/Co-operative, Neath)
Q We will now hear oral evidence from David Kerr, a fellow at the Chartered Institute of Credit Management. We have until 11 for this session. Could the witness please introduce himself for the record and make a few remarks about the Bill? Thank you.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Thank you for giving evidence today, Mr Kerr. You talked about restoring confidence to the creditor community. Would you say that there has been a loss of confidence in the creditor community? In relation to the 2,000 or 2,500 dissolved companies that you mentioned as having received covid-related loans, would you say that a high proportion of those may require investigation? Based on your experience of the creditor community, do you think that there was the means to repay those loans that those companies then tried to avoid?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q If a case passes the public interest test, do you think there should be the resources to deal with that? There is concern that the Insolvency Service may not have the resources, and therefore the ability to follow up on the expansion of powers in the Bill in the public interest. Has your experience been that the Insolvency Service has been able to resource any investigations that might be needed? What tools should the Government use to pursue directors of dissolved companies that they identify as culpable? Do you have a view on that?
Jeff Smith (Labour, Manchester, Withington)
Q Mr Kerr, you said that the CICM is broadly supportive. Do you have any particular concerns about the Bill? Is there anything that you think is missing from it, or could it be improved?
Jeff Smith (Labour, Manchester, Withington)
Q That is very helpful. On the three-year cut-off, are you concerned that that is likely to have implications on other investigations that the Insolvency Service carries out if it is not funded properly?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Are any sanctions that are currently available to use against directors who may have dissolved companies to avoid liabilities not being used as much as they could be?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
If you change your mind you can always let us know.
Peter Grant (Scottish National Party, Glenrothes)
Q Good morning, Mr Kerr. May I come back to the retrospective nature of parts of the legislation? The three-year period will be permitted because that is what the current timescale is. Given the notorious complexity of a lot of financial misconduct cases and the fact that they are long drawn-out processes, is there an argument for that three-year period to be extended in cases where there is an indication that there is not only misconduct, but potentially criminal fraud? I am thinking about cases in which the potential fraud runs into the tens of millions of pounds. Is there an argument that in those cases, there should be no hiding place for criminals of that scale, simply because of the length of time they have managed to get away with it?
Peter Grant (Scottish National Party, Glenrothes)
Q You say that you have not heard any such representations from the Insolvency Service. Have you had any such representations from lenders or creditors? They may take a different view from the Insolvency Service if it is their money that is at stake.
Paul Scully (Conservative, Sutton and Cheam)
Q Thank you for giving evidence, Mr Kerr. Can you talk a little bit more about the deterrent that you spoke about? How much of an impact do you think the measure, and especially the threat of disqualification, will have on providing the necessary deterrence?
Paul Scully (Conservative, Sutton and Cheam)
Q You talked earlier about the public interest test and prioritisation. Obviously, we are trying to strengthen the enforcement regime to deal with the most egregious cases of fraud in relation to the financial support that the taxpayer has given throughout the pandemic. In your experience, has the insolvency practice been prioritising this work? As well as having the public interest test, or threshold, has it prioritised approaching the most serious cases at the earliest stage?
Paul Scully (Conservative, Sutton and Cheam)
Yes. We are talking about Insolvency Service resources. We would have expected the Insolvency Service to prioritise the work that it does on the most egregious cases, and that would indeed be how we would anticipate it moving forward. Have you seen that first hand?
Paul Scully (Conservative, Sutton and Cheam)
Q We heard a little bit in the earlier panel about phoenixing. Do you think this measure will help to combat that malpractice, where one company is shut down and dissolved and another takes its place, with the same directors, doing the same business from the same premises with the same staff?
Paul Scully (Conservative, Sutton and Cheam)
Q Finally, in terms of your role in credit management, what do you think this will do for the confidence of lenders and supply chains, in particular SMEs in those supply chains?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q To follow up on a couple of points, there have been critics of the proposals in this small piece of legislation. From your experience and that of your members, how long can it take for companies that have been dissolved to be restored to the register? In 2019, over half a million UK companies were dissolved but only 33 restored. In terms of the time it takes in practice, what could that look like?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q How much could it cost? What sort of range of costs could creditors see?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q May I probe you a little further on the three year issue? You are right that within legislation there is provision for courts to make disqualification orders within three years after a company has been dissolved. This legislation extends that in line with that current time limit. In light of the fact that we have very unusual circumstances at the moment, with potentially thousands of companies that could require investigation, do you think that with that increased workload for the Insolvency Service, the question about available resources and the court backlogs, there could be a particular issue with directors effectively being culpable but the Government running out of time for courts to issue disqualification orders against them?
Simon Baynes (Conservative, Clwyd South)
Thank you, Mr Kerr, for your evidence. I have two questions. These measures clearly have widespread support. Can you give us a feel for the scale of the problem with dissolved companies? We have discussed quite a lot of different figures this morning, but do you feel this is a very significant problem, or a manageable problem, just to get some more idea anecdotally on thatQ ?
Secondly, clause 2 allows “easier investigation”. Can you give us some idea of the way in which the Bill improves that process of investigation?
Christina Rees (Labour/Co-operative, Neath)
Thank you for giving evidence, Mr Kerr. If there are no further questions, we will move on to the next panel.
Christina Rees (Labour/Co-operative, Neath)
Q We will now hear oral evidence from Dr John Tribe, senior lecturer in law at the University of Liverpool. We have until 11.25 am for this session. Please introduce yourself for the record and make some remarks about the Bill.
Christina Rees (Labour/Co-operative, Neath)
Yes, of course.
Christina Rees (Labour/Co-operative, Neath)
Thank you, Dr Tribe. We will now take some questions from Committee members.
Jeff Smith (Labour, Manchester, Withington)
Q Thank you Dr Tribe, that was a very helpful overview, and pretty unqualified support for the principle of the Bill. It did seem that your main concern is about resourcing it. You said that until appropriate funding is handed out to the Insolvency Service, the Bill will, at least, be a deterrent. Do you have a view as to the nature of the problem, and the funding that the Insolvency service would need to actually make this work?
Jeff Smith (Labour, Manchester, Withington)
Q Thank you, that is helpful. Just as a follow-up, are you concerned that there might be a focus on making use of these new powers at the expense of current work on other insolvent companies?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Dr Tribe, I want to ask first whether you have a view about the existing sanctions that are available to use against directors who may be abusing the dissolution process—perhaps powers that are currently available but are not used as extensively as they might be. That is one of the challenges that critics of this legislation may make.
Secondly, are there any other more general problems with the dissolution of companies that are important to discuss at this time while changes are being made? Should changes be made to the eligibility criteria on dissolutions? What steps need to be taken prior to dissolution?
Christina Rees (Labour/Co-operative, Neath)
Thank you, Dr Tribe. Peter Grant next.
Peter Grant (Scottish National Party, Glenrothes)
Q Thank you, Ms Rees, and good morning, Dr Tribe. Following on from that last question, there are three kinds of sanctions available now: the director disqualification, the compensation order and, ultimately, criminal prosecution. Are there significant differences, first, in the burden of proof required for each of those actions, and secondly, in the cost and time taken to bring any of those actions to fruition?
Peter Grant (Scottish National Party, Glenrothes)
Q You also mentioned, as some other witnesses have, what is known as phoenixing. There is a variant of that practice whereby, rather than creating a new company immediately after the old one has been dissolved, you create what looks on the surface like a legitimate group company structure, and then over time, you very quietly shift all the assets over to one company, leave all their liabilities in another one, wind up the company with the liabilities, and then the directors help themselves to the company with the assets. Does this legislation do anything to address that particular loophole, and if not, what further changes are needed to prevent, or at least strongly discourage, that practice?
Peter Grant (Scottish National Party, Glenrothes)
Q Finally, I want to look at the retrospective nature of some of the provisions from a legal point of view. First, do you have any concerns not about the principle of creating a retrospective offence, which the Bill does not do, but about retrospectively giving powers to an enforcement agency that we used not to have? Do you have any concerns about the natural justice issues that that might raise? Alternatively, are there circumstances where the three-year time limit is too short and where you would be in favour of allowing the Insolvency Service to go back more than three years before the dissolution date?
Peter Grant (Scottish National Party, Glenrothes)
Thank you.
Christina Rees (Labour/Co-operative, Neath)
I call the Minister.
Paul Scully (Conservative, Sutton and Cheam)
Q I have just two brief questions, because you opened up and summarised well. The point about funding has come up quite a lot, and I wonder if you could expand on some of your comments. You talked about the public interest test and the prioritisation of the Insolvency Service’s cases, so that it would look at the bigger, most egregious issues first. Obviously, with the number of cases you are talking about, it would also presumably look at the ones where there is a realistic likelihood of a successful outcome, rather just investigating every case.
Paul Scully (Conservative, Sutton and Cheam)
Q I have a final question. You mentioned Carillion, which you wrote about and studied. Within Carillion and a number of other cases—Carillion is an interesting one, because there are a lot of supply chains in there—as I asked previous panel members, what extra confidence does plugging these loopholes bring to small and medium-sized enterprises?
Paul Scully (Conservative, Sutton and Cheam)
Q It was about the fact that Carillion obviously has a large supply chain within it, and you have been dealing with and writing about cases with complex supply chains. What confidence can this measure to close that loophole give to SMEs in particular?
Jeff Smith (Labour, Manchester, Withington)
Q I will just ask one final question. We have had some written evidence suggesting that the current regime is adequate. If you do not mind my quoting from it, it says:
“Applying the current controls properly, putting dissolved companies into liquidation and publicising that new policy will be a far more effective deterrent...That requires no new legislation at all.”
Do you have a view on that?
Jeff Smith (Labour, Manchester, Withington)
Thanks.
Christina Rees (Labour/Co-operative, Neath)
If there are no further questions, I thank you, Dr Tribe, for giving evidence this morning. It is much appreciated. I thank all the witnesses for appearing this morning.
(Afternoon)
Examination of witnesses
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
Good afternoon. We are now in a public session and I can welcome our fourth panel of witnesses: Adrian Blaylock, revenues adviser at the Chartered Institute of Public Finance and Accountancy, and David Magor, chief executive of the Institute of Revenues Rating and Valuation. Gentlemen, may I confirm that you can see and hear us? And can you each introduce yourselves?
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
Thank you. This session will run to 2.45 pm. As you will understand, you will be questioned by members of the Committee. Are you going to start the questioning, Mr Smith?
Jeff Smith (Labour, Manchester, Withington)
Yes. Good afternoon; thank you for being with us. I thought it might be useful to start by asking both of you to make some introductory remarks about, in particular, clause 1 of the Bill and whether you think that it is the appropriate way of dealing with the problems that the Government have flagged upQ40 .
Jeff Smith (Labour, Manchester, Withington)
Q Thank you; that is very helpful. We will probably come back in a second to the issue of the amount. I suppose that this measure can be considered as shifting the risk from local authorities to Government and businesses—well, hopefully not businesses if the Government provide the money. Do you have any comments on the view from business and whether there are businesses and sectors that are particularly concerned? We have been approached by, for example, the airports, which do not think the money that will be available will be enough to tide them through the problems that they are facing. Other businesses or sectors may have a similar view. I am just wondering whether you have a view on that.
Jeff Smith (Labour, Manchester, Withington)
Q That takes me on to another question, specifically for Mr Magor, but Mr Blaylock may have a comment as well. The IRRV written evidence that we received flags up the issue of how you differentiate between covid and non-covid challenges and says that a “transparent, evidence-based process” needs to be adopted. I completely agree. I suppose the big question is how you do that. Would you have any comments on how you might define the difference between a covid and a non-covid challenge?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Thank you both for giving evidence to us today. I wonder if I could get your views on the value of what I think you have described as a “funding pot”—the £1.5 billion that has been allocated. Do you have concerns about the sufficiency of that, and what are those concerns based on?Q
The second question is more specifically to Mr Blaylock and relates to the IRRV’s evidence, in particular to paragraph 6, where you are talking about the benefits of amending provisions of section 47 of the Local Government Finance Act 1988. It would be useful to talk through your argument there to help us understand it.
Luke Hall (Conservative, Thornbury and Yate)
Q Thank you both for your evidence this afternoon. You clearly both have a wealth of experience, so it is really useful to hear your thoughts. What has your experience been of how the scope and extent of MCC claims have evolved over recent years? Could you talk us through the changing landscape of using this type of appeal over the past few years?
Luke Hall (Conservative, Thornbury and Yate)
Q A lot of the early feedback we received suggested the potential scale of the appeals was causing concern in local government. We started to hear talk from local government about potential savings to frontline services that would need to be made. Could you tell us your experience of the way local government started to approach that potential task, and whether that started to impact on budgeting and forecasts for councils in setting their budgets?
Marie Rimmer (Labour, St Helens South and Whiston)
There are three very specific exemptions to the restrictions on appeals set out in clause 1(5), inasmuch as the valuation decision must take into account the effects of covid-19 on the quantity of minerals extracted and the quantity of waste disposal from the property, along with the physical state of the property being affected. Do you think those exemptions are reasonable and are there any other circumstances that you feel should be includedQ ?
Marie Rimmer (Labour, St Helens South and Whiston)
Q How will the provisions affect local government income from business rates? I know you said “significant” earlier.
Marie Rimmer (Labour, St Helens South and Whiston)
Q I can accept that.
Marie Rimmer (Labour, St Helens South and Whiston)
Q Of course, it then has an impact on the resources available to meet the statutory duties, because business rates are much more involved now than when it was grants from the Government. The business rates revaluation is currently taking place, to be concluded in March 2022. The Bill would prevent businesses from retrospectively making an appeal against rateable values as they are now, even when the new system is in place. Is that provision necessary in your opinion?
Marie Rimmer (Labour, St Helens South and Whiston)
Q Do you agree, Mr Blaylock?
Simon Baynes (Conservative, Clwyd South)
I thank our witnesses. Clearly there is widespread support for the restriction on rating appeals, given the trade-off of extra funding for relief from the Government, but picking up on the point about the rate revaluation—Q [Interruption.]
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
For our witnesses, the Commons is being suspended for three minutes. It is not a vote or a fire bell.
Simon Baynes (Conservative, Clwyd South)
Thank you, Mr Mundell. Is there a sense in which the timing of the rate revaluation is a helpful coincidence, in that it could mitigate some of the issues that ratepayers might have with the change to their business arising from coronavirus, perhaps particularly where a business has been badly affected and has to change its whole focus? Is the revaluation a way to mitigate that, and is that a helpful coincidence of timing?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q To ask a follow-up question, you were talking about local authorities and schemes they may need to set up, Mr Magor. What are you expecting in the guidance from Ministers? How soon does that guidance need to come? We heard concerns about how quickly this needs to happen. From your experience, could you share your view on how long that pot could last? Does there need to be reporting and review of expenditure? What do you expect from the Government on that and on working with local authorities on this?
Jeff Smith (Labour, Manchester, Withington)
Q Looking at the parliamentary timetable, it seems very unlikely that the Bill will be passed before the end of September, which creates the problem that you have just identified. I think we are all fairly clear that the Bill will pass at some point. Is there any reason, in your view, why the Government cannot give indicative guidance ahead of—you talked about it being in three stages—stage 1 being completed? Is there any reason why indicative guidance and possibly indicative valuation amounts for each local authority could not be given?
Jeff Smith (Labour, Manchester, Withington)
Q Clause 1 is effectively trying to make retrospective the regulations that were passed in March. I appreciate that only three months or so have passed since then, so it may be too early to make a judgment, but is there anything we can learn from the way that businesses or local authorities have reacted to those regulations? Are there any lessons that we can take from those operations so far?
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
Gentlemen, your timing has been excellent, because you have concluded answers to the questions just within the time limit. On behalf of the Committee, I thank you both for your evidence this afternoon.
Examination of Witness
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
Q We will now hear from Sarah Pickup, who is the deputy chief executive of the Local Government Association. Sarah, can you confirm that you can see and hear us?
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
Q We have until 3.15 pm for this session. Could you confirm your details for the record?
Jeff Smith (Labour, Manchester, Withington)
Q By way of introduction, could I ask for the view of the LGA on the principle of the Bill, which I think you welcome, and your concerns about any of the detail?
Jeff Smith (Labour, Manchester, Withington)
Q That is really helpful. My second question was going to be whether you feel that £1.5 billion sounds like an adequate figure based on the indications you have had from local authorities. Given that you find it difficult to work out the time period involved, I am guessing that it is even more difficult to judge whether £1.5 billion is sufficient. Do you have any view on that?
Jeff Smith (Labour, Manchester, Withington)
Q Clearly, the guidance is absolutely key. Can you confirm whether discussions are happening with the LGA or individual councils about drafting that guidance?
Navendu Mishra (Labour, Stockport)
CanQ you comment about how these provisions will affect local government’s income from business rates? We hear a lot about cuts to local government in the last 11 years, but how will this impact finances?
Luke Hall (Conservative, Thornbury and Yate)
Q Thank you for your evidence: I know the LGA conference is happening today. Can you think back and tell us when the LGA first heard about the potential scale of losses through MCC challenges and appeals? What was the reaction of local government at that time? What issues were they raising with you and how widespread was the concern? What time did it start to build up?
Luke Hall (Conservative, Thornbury and Yate)
Q It would be interesting to hear your view, from a local government perspective, on exactly why the LGA thinks that ruling out MCC appeals for councils provides extra certainty—I think that is what the LGA has said—and how big a difference that has made to councils and their planning of their finances.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q As a slightly different angle on this, I was just wondering about any contact that you may have had, or experience that you may have had, with the Valuation Office Agency at the moment, and whether it has the resources it needs for the work it is currently undertaking—its existing functions—as well. I would be very interested in your perspective on that.
Marie Rimmer (Labour, St Helens South and Whiston)
Q The business rate revaluation that is currently taking place should be concluded in March 2022. The Bill would prevent businesses from retrospectively making an appeal against rateable values as they are now, even when the new system is in place. Is that provision necessary?
Marie Rimmer (Labour, St Helens South and Whiston)
Q Are you aware that three exemptions to the restriction on appeals are set out in clause 1(5)? They are very specific. The effects of covid-19 may be taken into account in valuation decisions when they affect the physical state of the property, the quantity of materials extracted or the quantity of waste disposal from the property. Those are the three specific reasons—losing trade or someone’s business going down because of covid are not among them. Are you aware of that?
Marie Rimmer (Labour, St Helens South and Whiston)
Q Earlier this afternoon, you talked about a backlog of rateable valuation appeals. Do you consider that the rate valuation officers will be resourced enough to catch up with the backlog and get on with everything that comes from this?
Marie Rimmer (Labour, St Helens South and Whiston)
Thank you.
Jeff Smith (Labour, Manchester, Withington)
Q When we get the guidance—I imagine that the LGA would welcome an early indication of what that might look like—there will be quite a job for councils. They will have to design the scheme and agree it with their members. They will then have to do all the eligibility assessments. There might be IT updates to facilitate the new relief and there will presumably be some sort of reporting requirements. That is a lot of extra burden. I am guessing that the LGA might welcome some new burdens funding. Do you have any thoughts on that and what an appropriate amount might be?
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
There are no further questions for Ms Pickup. I thank you for your time this afternoon giving evidence to the Committee.
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
Q As we have concluded the second panel slightly earlier than scheduled, we move to the third panel. I welcome Andrew Agathangelou. This session can run until 4 o’clock. I ask our witness from the Transparency Task Force to introduce himself for the record.
Jeff Smith (Labour, Manchester, Withington)
Q Welcome, and thank you for being with us. Following on from your last comment, it would be a helpful start if you could indicate your particular interest in this legislation, to what extent you welcome it and what the concerns around it are.
Jeff Smith (Labour, Manchester, Withington)
Q Thank you. You make a very powerful case for the ability to take action against these kinds of individuals. The question that follows on from that is: do you think the measures in the Bill are significant enough to have a material effect on the kind of individuals you are talking about who dissolve companies? Are they enough of a deterrent to make a real difference to this issue?
Jeff Smith (Labour, Manchester, Withington)
Q What tools should the Government use to follow and recoup the money from the directors identified as culpable in these circumstances?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Let me follow up on that. Thank you for giving evidence. You laid out a broad landscape of institutions and organisations that you said were together allowing the crime to go on, on the scale that you believe it is. You went on to say that the regulation is not really built to cope with what is happening. As part of that systemic issue, what do you think the Insolvency Service is not doing as well as it should, and does it have the resources that it needs to perform its functions effectively?
Peter Grant (Scottish National Party, Glenrothes)
Good afternoon, Mr Agathangelou. Picking up on your last point, I do not know if you are aware that a couple of amendments have been tabled that would require the Minister to Q come back to Parliament and report at a future date, first, on the extent to which the powers of the Bill had been used and, secondly, with an assessment of how effective the Bill had been in addressing the problems that had been identified. In your view, would those amendments strengthen the Bill, make it weaker or make no difference?
Peter Grant (Scottish National Party, Glenrothes)
Q One of the questions we looked at in quite a lot of detail this morning was the retrospective nature of part of the legislation. It does not create a new offence or mean that something that was lawful at the time is retrospectively made unlawful, but it gives the Insolvency Service powers to look back at previous events that it could not have looked at in the same way before. First, do you agree with the principle that the Bill should be retrospective? Secondly, what are your thoughts on the three-year time limit that says that the Insolvency Service can look only at things that happened in the three years before a company is dissolved?
Peter Grant (Scottish National Party, Glenrothes)
Q One final question, if I may, that ties together two of your previous answers. You said that you had certain knowledge of the type of scams that you just described, perpetrated by company directors who were doing the same thing many years ago. It is up to you if you want to name names in answer to this question, but are you aware of people conducting these scams now who could be disqualified from office as directors if the Insolvency Service went back and looked at the conduct of directors of companies that were dissolved earlier than the time limit of three years set out in this Bill? Does the three-year rule actually prevent the Insolvency Service from investigating directors currently conducting scams who, without that time limit, could be held to account and disqualified from holding office?
Navendu Mishra (Labour, Stockport)
Q I believe that all 650 MPs will have constituents who have been victims of the practice of phoenixing. I believe you made reference to law enforcement agencies, Action Fraud and the National Crime Agency. Could you tell us a bit more about how big the problem of phoenixing is—directors using legislation to dissolve companies to avoid liabilities and further investigation?
Navendu Mishra (Labour, Stockport)
Your contribution is quite depressing, but thank you for making it.
Paul Scully (Conservative, Sutton and Cheam)
Q I am here with my corporate governance hat on, but I am also Minister for Consumers. The issues that you raise about scams are really important, and it is really important that we continue to address that. We just had Scams Awareness Week; we have been raising awareness so that people do not get involved, but it is also important that we make sure that institutions and networks are addressed in these sort of ways.
It is interesting: you talked about the amendment, which actually asks for a single report in a year. Clearly, we want to be managing the situation and making sure that it is effective. In terms of the time that you are looking at, obviously that does not negate the ability for criminal action to be taken; it is to restore directors.
I really want to focus on the Bill itself, and the focus within that and what we are doing positively to try to tackle some of these issues—including on phoenixing, which you started off talking about. I know you talked about lots of other things, and other things that we can be doing and are doing, but do you agree that the Bill adds an extra weapon to tackle phoenixing itself?
Paul Scully (Conservative, Sutton and Cheam)
I appreciate that. If you look at corporate governance and Companies House reform and all these issues, and indeed at the online harms Bill, I am sure you will have plenty of opportunity to comment on that. As I say, this deals with one specific issue because of the impetus now. That is all I wanted to raise.
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
If nobody else has any questions for our witness, I thank you on behalf of the Committee for your evidence, Mr Agathangelou. I am sure the Committee welcomed your frank speaking throughout. Thank you very much.
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
We move on to our fourth witness panel for this afternoon. The next witness we will hear from is Kate Nicholls, the chief executive of UKHospitality. We have until 4.45 pm for this session. Ms Nicholls, could you formally introduce yourself for the record?
Jeff Smith (Labour, Manchester, Withington)
Q Welcome, Kate. We are keen to get the view of business about how this legislation will affect businesses. Of course, UKHospitality will primarily be about hospitality businesses, but I am sure that you have supply chain businesses—and you will certainly be concerned with supply chain businesses that are some of the targets for the funding in this package.
I suppose my first question is this: what is the general view of UKHospitality of the measures, allied with the £1.5 billion funding package that goes with them?
Jeff Smith (Labour, Manchester, Withington)
Q I suppose the question that follows on from that is this: if the discretionary grants have not really been swift and seamless, as you have said, for various reasons, what lessons can we learn in trying to put in a regime for the grants that go along with this package to help businesses and local authorities in particular to manage the grant regime better?
Jeff Smith (Labour, Manchester, Withington)
Q In terms of the quantum of the figure—the £1.5 billion—do you have a view on whether that is sufficient? What kind of businesses ought to be prioritised in the guidance when it comes through?
Jeff Smith (Labour, Manchester, Withington)
Q Finally, have you had any conversations with the Government about that mechanism and guidance? Are they taking soundings from hospitality businesses in particular about how that might work?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Thank you very much, Ms Nicholls, for your evidence. Do you want to add anything further about businesses that have been excluded from other support that you believe should be within the scope and remit of—and therefore eligible for—this funding? Secondly, are you concerned about delays to the funding? How quickly do you think it needs to be made available?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Thank you; that was very helpful. Within the sector, and from wider discussions you have had with those excluded, are you aware of businesses that have put in MCC appeals? What is the general feeling about this legislation?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Finally, have you seen a rise in businesses that may have experienced debt and other challenges being dissolved? What does the data in your membership say about what has been driving that? Are there any wider issues around the dissolving of companies that we should be aware of?
Jeff Smith (Labour, Manchester, Withington)
Q Can I follow up on a specific question that follows from something you said earlier? I was interested to hear you say that the hospitality trading levels in London are 20% to 30% of what they would normally be, and in the rest of the country it is around 60% to 70%. That is partly down to international travel, and I am guessing that there might also be areas—maybe coastal towns—that might be similarly affected by lack of footfall. I am wondering whether there is an evidence base for those regional or city-based variations that the Government might take into account in guiding the allocations, or is that a little bit too sophisticated to get into?
Luke Hall (Conservative, Thornbury and Yate)
Q We are clearly moved to give 100% rate relief to many businesses with a £16 billion pot. Of course, I understand that some of the businesses you work with and represent will have been disappointed about where the line was drawn, so to speak. I just wonder, notwithstanding the point you made earlier in answer to the question about guidance, whether there is anything you would like local authorities to start thinking about as they start to draw up their own guidance schemes in response to some of the early challenges that have been faced by some of the businesses you will be working with.
Paul Scully (Conservative, Sutton and Cheam)
Q Briefly, with my hospitality Minister hat on, and following on from that question, Kate, you will remember that Minister Huddleston and I wrote to local authorities asking them to use their additional restrictions grant before they access their top-up. Have you seen any evidence of any local authorities responding to that, either by giving more money to businesses on their books or by widening the base to fill some of the cracks that you are highlighting?
Simon Baynes (Conservative, Clwyd South)
Q Ms Nicholls, I have heard you speak on many occasions about hospitality businesses with great authority. One of the points that occurs to me is that they have the capacity to spring back quicker than some other businesses. That has certainly been the experience, particularly of last summer. They also benefit from the restrictions on travel, in terms of domestic demand. Do you think that to that extent it is quite difficult to judge exactly what the situation would be like at this particular point, because they may spring back better than we fear in, say, the late summer or the autumn?
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
Thank you very much, Ms Nicholls, first, for your evidence and, secondly, for your flexibility with your timings so that you were able to join us early. We appreciated that very much.
Examination of witness
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
I now come to our next and final witness of the day. We are going to hear from Duncan Swift, formerly the president at R3, and we have until 5.15 pm for this session. Mr Swift, could you please introduce yourself for the record?
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
We are grateful to you, too, for your flexibility on timing.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Thank you for giving evidence to us today, Mr Swift. I wonder whether you might want to make some opening remarks about your general views of the Bill and whether you support the measures in it.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Could you say more about the scale? You talked about what you saw as the scale of the issue. What is your experience of that?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q You have written in, but not formally, I do not think, to the Committee with evidence. I think you have written to Members of Parliament before. I wonder whether you might be able to put some of those ballpark calculations in a note to the Committee.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Thank you. You raise some quite serious concerns about the resourcing of the Insolvency Service. Are you and your members concerned, then, that action is not being taken against directors against whom action should be taken? Are you seeing that result in phoenixism? Have you seen that and have your members seen that?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q That is very helpful—thank you. Could I ask further about when you have submitted reports and where action has been taken by the Insolvency Service and the Government? How do you think the Government should facilitate the repayment of loans from disqualified directors? Do you see that as through compensation orders? What other tools do you think could be used?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q To follow up on that briefly, in your view there is an inadequacy in the legislation at the moment. Do you think that there is more that needs to be done? What would you want that to look like?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q From your experience, how long was that process taking?
Peter Grant (Scottish National Party, Glenrothes)
Q Good afternoon, Mr Swift. May I pick up on something you referred to and which was mentioned in the submission to us yesterday from your colleagues at R3? You said that there are a number of reports of potentially serious misconduct by directors that have been submitted by your members that do not seem to be acted on. I can understand that, as a representative body, R3 might not be privy to the details, but are you telling us that you will have had members who have acted as administrators or liquidators who have submitted highly critical reports to the Insolvency Service and have then seen the same directors coming back, setting up a new company and essentially restarting the same kind of misconduct? Is that the information that you are getting back from your members, even if they are not allowed to tell you which companies they are referring to?
Peter Grant (Scottish National Party, Glenrothes)
Q One solution that has been mooted— a partial solution—is that where an administrator or a liquidator makes a report beyond a given standard of belief that there has been serious misconduct, the fact of that report being submitted should be in the public domain. At the moment, it is a public fact that a report has been submitted, but the content of it is not published. Creditors of the dissolved company, and potentially investors in and creditors of a phoenix company, do not know whether any misconduct has been identified by the liquidator or administrator. Where do you see the balance of public interest in that case? Is there a question of potentially damaging the reputation of a director who turns out to have done nothing wrong? Or is it more important to protect the next generation of investors by flagging up that that particular director has had almost a yellow card—a report against them—that has not quite been followed up?
Peter Grant (Scottish National Party, Glenrothes)
Q Would it make rogue directors less comfortable or less complacent about having one of their companies compulsorily struck off for what I think you described as non-compliance with reporting requirements? Would they be less likely to do that if there were also an automatic disqualification of all the relevant directorships at the same time? Would that act as an effective deterrent?
Peter Grant (Scottish National Party, Glenrothes)
Q May I play devil’s advocate for a moment and mention the fact that a lot of what you have suggested would generate a lot more work for insolvency practitioners? How do you persuade members of the Committee that what you are asking for is actually in the best interests of creditors, investors and suppliers of these companies, and is not simply trying to drum up more business for your employers?
Peter Grant (Scottish National Party, Glenrothes)
Q I have one final question. The legislation as it stands would set a three-year time limit on any application for disqualification, starting from when the company was dissolved. What are your views on that three-year time limit? Is too short, too long, or just about right?
Paul Scully (Conservative, Sutton and Cheam)
Q To expand on a few of those areas, starting with the three-year time limit to file a disqualification application, the Insolvency Service or the Secretary of State can already examine historic conduct, but they have three years to file the application for disqualification. Can you expand a bit on what you meant about the court process, which presumably comes afterwards?
Paul Scully (Conservative, Sutton and Cheam)
Q We talked a little about compensation orders earlier, which already exist for insolvent companies. This legislation would effectively extend them to dissolved companies, so that compensation can affect all creditors— individual and classes of creditors. A lot of the stuff you talked about at the beginning related to a wider piece of work that you would like to see on Insolvency Service reform and corporate governance. However, do you find the fact that we are bringing compensation orders within the realm of dissolved companies of benefit to—
Paul Scully (Conservative, Sutton and Cheam)
Q Okay. The other issue I want to clarify is the resource issue that we started off talking about. In some of the conversations that we had with earlier panellists, we were talking about the public interest test and the prioritisation of the cases that were most likely to get a result, frankly. Is it purely a resource issue that you are raising? Is it one of those that is not working as well? Are you saying that the filters may be wrong within those tests? Could you expand on that?
Paul Scully (Conservative, Sutton and Cheam)
Q That is interesting—thank you very much. Obviously, we consulted on this back in 2018, but there is a particular compulsion to do this now, to tackle the most egregious cases of fraud involving the financial support given by the taxpayer throughout the pandemic. Presumably you welcome that, and therefore the drive to get this measure—albeit that it is not as wide as you would like—through now?
Paul Scully (Conservative, Sutton and Cheam)
Q Sure, but going back to the numbers—I know that it is anecdotal so it is difficult to tell—what sort of deterrent effect do you think this will have?
David Mundell (Conservative, Dumfriesshire, Clydesdale and Tweeddale)
There are no further questions, Mr Swift. We thank you for your evidence this afternoon, and for your flexibility on timing, which we greatly appreciate. That brings us to the end of today’s sitting. The Committee will meet again on Thursday 8 July to begin line-by-line scrutiny of the Bill.