My Lords, if it will not embarrass the Minister too much, this side must also add our thanks for these amendments which, to a certain extent, take account of the issues I raised about companies in formal insolvency which risked a penalty being made by a tribunal, given that companies in insolvency clearly have financial difficulties. This is partially dealt with by Amendment 24, and we are grateful for that.
However, there are two other issues on which I would like the Minister to respond because the amendment does not prevent a tribunal levying a penalty on a company in formal insolvency. One is that in formal insolvency, the old management is no longer there. It is not in charge; it is a new, quite separate, professional insolvency practitioner, who has been brought in to sort things out. Therefore, any penalty would not be levied on the people who had done wrong, if you like, and had caused the tribunal’s award. Nor could it act as a deterrent to repeating the breach because the company would now be in someone else’s hands. The only effect would be to deplete the assets available for the creditors, including the employees, as suggested by the Minister.
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The other point concerns the need for certainty for any prospective purchaser of the business. Even the possibility of a penalty, of some indeterminate size, being outstanding against a company for the actions of the former directors, makes it that bit harder for an administrator to sell on the business, when the whole point of the insolvency process is to retain companies and maintain employment. Any additional liability could lead an insolvency practitioner to conclude that trading in administration is too risky.
We assume that the Government consider tribunal chairs best placed to make a decision on the facts in each case. However, with businesses in formal insolvency the impact of the penalty is not dependent on the circumstances of the case because the cost will never be borne by the perpetrators but by the creditors. The new clause, which we welcome, ensures that the tribunal
must consider the company’s finances, but it does not lift the threat of a penalty against the wrong target and does not bring certainty to a potential buyer.
I therefore have two questions for the Minister. First, can he confirm that the Government intend to ensure that businesses in the formal insolvency process, where there is, by definition, an inability to pay, should not have to have these penalties applied to them? Secondly, given the professional time costs involved in attending and presenting evidence to a tribunal—again indicated in the Minister’s response—will the Minister confirm that written evidence that a business is in a formal insolvency process will be sufficient to demonstrate an inability to pay?