My Lords, these amendments respond to points raised by the noble Lord, Lord Stevenson, in Grand Committee. I am most grateful to him for raising this important issue. It is relevant to this Bill because it will help businesses, especially those needing to be rescued, and as such supports the Bill’s themes. The amendments contain powers that, when exercised, will assist businesses in insolvency procedures by increasing the chance of business rescue. Alternatively, where there is no chance of a rescue they may help to achieve a better return for creditors than would be delivered by an immediate liquidation or bankruptcy.
Amendments 84C to 84E contain powers to render void contractual terms that allow an essential supplier in the utility and IT sectors to withdraw supply from an insolvent business. These powers would also prevent suppliers in these sectors taking advantage of the insolvency by unfairly and unreasonably increasing charges for that supply. Some have described such demands as “ransom payments”, saying that where they are made, that supplier gains an unfair advantage over other creditors in the insolvency. They can act as a barrier to rescue and may force businesses to close down, causing unnecessary job losses.
Amendment 84B provides an enabling power relating to IT suppliers and those that provide or sell gas, electricity, water or communication services that are essential to business. By communication services, we mean services such as telephone, fax or broadband access that may be provided to a business. The amendment would add such supplies to an existing list of essential suppliers who must continue to supply and who may not demand payment of a pre-insolvency debt as a condition of that supply. They may, however, seek a personal guarantee from the insolvency practitioner as a condition of continuing to supply the insolvent business.
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The Government recognise that some of these proposals would affect contractual rights. For this reason the provisions are restricted to supplies that are essential to today’s business and which typically cannot be sourced quickly from alternative suppliers. They will not impact upon ordinary trade supplies. Further, this power is only exercisable in relation to procedures where there is still some chance of business rescue, that is to say administration and voluntary arrangements. There are also several safeguards provided for affected suppliers to ensure that the supplier is paid, including the right to require a personal guarantee from the insolvency practitioner for the post-insolvency supply.
The powers allow for exceptions to be made to this right to request a personal guarantee. The 16th report of the Delegated Powers and Regulatory Reform Committee noted that the provision to make exceptions is widely drawn and asked for further information as to the circumstances in which this provision might be used. We will consult on any use of these powers, and we require the flexibility provided by this power to address issues that might be flagged during consultation. Situations where it would be appropriate to restrict the right to obtain a personal guarantee might include, for example, where no point would be served in requiring a personal guarantee. One example of this is if the third party had already guaranteed payment.
The remaining amendments in this group deal with extent and commencement. The UK’s insolvency regime is highly regarded internationally as one that delivers quick and effective business rescue mechanisms. The Government continue to seek to improve these mechanisms. These powers provide scope to give insolvency professionals the tools they need to rescue viable businesses, while giving adequate protection to those that will be impacted. I am grateful to the noble Lord, Lord Stevenson, for raising this important issue. I am aware that the noble Baroness, Lady Hayter, and the noble Lord, Lord Stevenson, may wish to speak about these amendments. I will respond to their amendments after they have spoken. I beg to move Amendment 84B.
Amendment 84BA (to Amendment 84B)