Good afternoon, my Lords. I hope that your Lordships all had a good weekend break. I am very grateful to the noble Baroness, Lady Hayter, for putting forward this amendment. As she rightly said, R3 has been working closely with our officials to find a way forward in this important part of the legislation and to try to find a modus operandi—or modus vivendi, whichever one wants to call it—to create the right effect.
I am grateful to my noble friend Lady Brinton for saying that the principle is the right course, and I think we all agree on that. However, as I think most people would agree, the problem lies with the practicality of this. The practicality is that an employee goes to a tribunal suing for wrongful dismissal and the company goes bust. It therefore has no money to pay anybody—in theory, that is why it has gone bust—and there is no right of recourse. I think that my noble friend Lady Brinton was right when she said that we would want to ensure that that wronged employee was very high up the pecking order in attracting revenue from the residual of the company’s assets.
I assure my noble friend that employees have rights equal to those of other creditors. There was some mention that the Exchequer sat ahead of them. The Exchequer does not sit ahead of employees in rights, so it has rights equal of those of the employee. I fear that it is slightly like banging one’s head against a brick wall in that, if nothing is left over in the tin, no one is going to get anything—not the Exchequer, not the suppliers and not the good staff, who have not been paid. That is the problem with this issue. Of course, everything is prefaced by the fact that the tribunal judge knows what is going on and so uses his discretion. It is right that he is empowered to use his discretion in finding out the state of the company to see whether there is going to be money in the tin, quite rightly, to pay this wronged individual.
For the company, £5,000, which we agree is a reasonable figure, is not enough to impact on whether or not it goes into liquidation. It is a small amount in terms of that overall decision and so is not going to be the driver that stops the company trading. Although we are sympathetic to this issue, in our view it is almost impossible to be prescriptive about it, and therefore I do not see how this amendment would work.
Similarly, with Amendment 20PA, there is already a list of four prescriptions for determining the unfitness of directors. If we start adding to that list at this point, where do we stop? Out of a board of 15 directors, is there one director who has failed to behave properly, and should we therefore take action against all directors? Should we expand this prescription, which came into force in October 2009 under the previous Government
and which we supported at the time? I just do not think that at this point it can be limited to one director, despite the fact that I see the direction of travel of the noble Baroness.
I also want to say again that the judge at the tribunal will take into account the misbehaviour of a director when making his award. That is his job. He will see the evidence, which will be presented to him openly and fairly, and he will take that into account in his award. I acknowledge the difficulty and problems that we have with this particular aspect, and acknowledge and thank those who have said that it is the right direction of travel, but with this provision we would make it too prescriptive for ourselves. We continue to talk to R3, and we will continue to talk to the noble Baronesses about this as we go into Report. On that basis, I hope that the noble Baroness feels that she can withdraw her amendment.
3.45 pm