Concerns over controversial business relaunch legislation

Wednesday 15 April 2020

Fears are growing that controversial pre-pack legislation being rushed through by the government to help businesses relaunch after the health crisis could leave others on the brink of collapse.

In a press conference last week, Assistant Treasury Minister Senator Ian Gorst said the government was working on bringing forward “rapid legislation” to allow for ‘pre-pack administration’ in Jersey to allow companies to start again once the covid-19 health emergency is over.

“This allows a company that has been struggling – perhaps even before we got to the crisis – to close down… When we come through the crisis, those companies will be able to set themselves up with a pre-pack and start to trade again,” he explained. 

While the practice protects companies unable to meet their outgoings from insolvency proceedings, it is also hugely controversial, as it can leave unsecured creditors, such as suppliers and landlords, out in the cold.

The practice meant, for example, that when businessman Mike Ashley took over House of Fraser, which at the time owed £484m, he only had to put up several hundred thousand pounds. Pressure was put on Mr Ashley to pay the money owed, but, legally, he did not have to do so.

Video: Assistant Treasury Minister Senator Ian Gorst announced the move during a press conference.

For this reason, the practice has been branded ‘immoral’ by some suppliers, with the UK government even considering outlawing it altogether at one point. 

In Jersey, the procedure could be a vital lifeline for some businesses, while damaging others that are unable to recoup money owed to them. 

Deputy Kirsten Morel, who leads a panel tasked with reviewing the government’s economic legislation, said he was “very concerned” at the mention of “pre-packs” by Senator Gorst, “especially because some of those creditors might be employees who are owed wages”. 

“At the moment everyone in Jersey needs to be able to get their hands on as much money as they can because they don’t know how long the crisis is going to go on for,” he told Express.

“While pre-pack administration might benefit some businesses, it can also do a great deal of harm to other businesses and the employees of the firm entering administration.” 

He added that he was troubled that the idea had not been shared with his panel, nor the wider States Assembly, before being mentioned in a public press conference.

Pictured: Deputy Kirsten Morel, Chair of the Economic Affairs Scrutiny Panel, said he was "very concerned" about the legislation.

Deputy Morel added that many emergency laws were being drafted up and voted on in a short space of time, reducing States Members’ ability to be able to review them in detail and check for any potential hurdles.

“From a Scrutiny perspective, we would want to scrutinise that very carefully – and we’d need more than just 24 hours and 48 hours that they’ve been giving us because it could be a case of the unintended consequences are much worse than the problem they’re trying to solve.”

If pushed, he said his panel, which would normally carry out reviews over several weeks or even months, might be able to review the plans within a week “at best”, but said that it would be a big ask from the government. 

Mention of the new pre-pack plans come as nerves are already rife among local suppliers as unpaid invoices grow as businesses shut up shop in response to covid-19.

However, the usual course of action – the Petty Debts Court – is no longer possible, meaning there is currently no official way of chasing the money they are owed. 

Chamber of Commerce Chief Executive Murray Norton described this as a “major concern” for the island’s key business lobby group when speaking to Express last week.

Pictured: Chief Executive of the Chamber of Commerce, Murray Norton.

“The Petty Debts Courts are suspended now indefinitely. You can understand in these circumstances that no one is going to want to take anyone to Petty Debts for not paying bills, but the knock-on effect of that is that people aren’t paying bills to suppliers to businesses and those businesses are becoming very short on cashflow,” he explained.

“If you’re a supplier, whatever trade you’re in, and you supply products and you’ve got two or three months outstanding of people not paying their bills, that can mount up to a very big debt.” 

The Assistant Treasury Minister’s remarks on pre-pack administration came as he announced taxes will have to rise to cover the cost of tackling covid-19 and its effects on the economy, telling islanders: "There is no such thing as free money" – comments that some islanders criticised on social media for their timing and sensitivity.

Several politicians have also urged against discussion of the health crisis's impact on the economy before it is over.

Over the Easter weekend, Deputy Kevin Pamplin tweeted: “Too many people have died. Too many countries were not ready. Now is not the time to talk about the financial outcome of this pandemic. We get it. But not now.” 

Evening. Hope you’re ok
Too many people have died
Too many countries were not ready
Now is not the time to talk about the financial outcome of this pandemic
We get it. But not now. However.
The world & #JerseyCI has changed, there is much to learn.
Honour those lost & keep strong

— Deputy Kevin Pamplin (@KevinPamplin) April 13, 2020

The sentiment was echoed by the Assistant Chief Minister, Constable Richard Buchanan, who replied: “I agree Kevin, long way to go and we do not know what the world will look like on the other side. 

“Let’s concentrate on keeping as many people alive as possible for the moment.”