WATCH: Government unpacks pre-pack plans

Monday 20 April 2020

The government has eased back on plans to rush through pre-pack legislation after concerns were raised about the controversial scheme’s potential to leave creditors in the cold.

The Assistant Treasury Minister, Senator Ian Gorst, announced earlier this month that the government was working on quickly bringing forward a number of measures to support businesses, including pre-pack administration.

In a press conference, he explained that introducing the practice would protect local companies unable to meet their outgoings and allow them to start again once the covid-19 health emergency is over.

But the statement left many fearing that unsecured creditors – particularly supply companies – would lose out as a result.

Among those to raise concerns about the scheme was Deputy Kirsten Morel, Chair of the Economic Affairs Panel, which is tasked with reviewing the steps government is taking to help businesses throughout the crisis.

Pictured: Deputy Kirsten Morel raised concerns about the potential introduction of pre-pack administration. 

He said he was “very concerned” by the idea of approving such legislation at short notice, telling Express early last week: “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.”

However, the language around the move appeared to have changed by Thursday.

Contrary to Senator Gorst’s mention of “rapid legislation”, Director of the newly-formed Economy Department Richard Corrigan insisted that no such move would be made without extensive discussions with those who stand to benefit or lose out.

“There is a need for us to modernise our insolvency regime but we need to do so carefully so we’re not jeopardising the interests of creditors unfairly either, so we want to protect those that owe money, but equally we have a duty to protect those that are owed money as well,” he said.

Video: The Economy Chief made the pledge to ensure pre-pack administration proposals go to a full consultation during a Scrutiny hearing.

“I don’t think we’ll be making major shifts of policy either on employment law or on insolvency regimes without a proper consultation exercise to take everyone’s interests into account – not just the interests of business owners.” 

Economic Development Minister Senator Lyndon Farnham was also present at the hearing, during which he revealed that he was reconsidering some aspects of the co-funded payroll scheme, which sees the government fund 80% of each employee’s salary up to £1,600 per month.

He said that, in some instances, the government should look at paying 100% of their salaries.

Describing himself as “concerned” by the businesses that may not be able to meet the 20%, he commented that he wouldn’t support a furlough scheme, but instead proposed: “…Rather than saying to businesses, ‘We will pay you the maximum 80% of £2,000, which is £1,600, why not say to businesses that we will pay you 100% with a cap of £1,600?”

The comments came the day before the Minister had been due to announce the detail of phase 2 of the co-funded payroll scheme.

Pictured: The Economic Development Minister has delayed the release of details about the second part of the co-funded payroll scheme in order to tweak it.

But he did not do so as planned on Friday, telling islanders that an announcement would instead be coming this week to allow time to tweak the scheme.

The Minister for Economic Development, Tourism, Sport and Culture, Senator Lyndon Farnham, said: “I understand that many business owners and employees expected clarity on the next phase of payroll support scheme today. 

“However, my fellow Ministers and I are keen to ensure that we get all the necessary detail absolutely right, as this will be the biggest injection of financial support ever made into the Island’s economy.”

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