Companies (Subsidiaries in Liquidation) (Hansard, 9 July 1991)

§ Mr. Kenneth Hind (Lancashire, West)
I beg to move, That leave be given to bring in a Bill to make a holding company responsible for certain debts of its wholly-owned subsidiary in liquidation; and to make other provision for such circumstances. The Bill is aimed at preventing holding companies from retaining factories, machinery, and assets while putting wholly owned subsidiaries with no assets into liquidation, and passing the costs of redundancy payments, holiday pay, national insurance, PAYE, income tax and VAT to the taxpayer.
The Bill will achieve that by transferring statutory debts to the holding company when a wholly owned subsidiary is put into liquidation. It will defeat the practice of creating subsidiaries to avoid statutory debts, and will deal with the problem of what are known as phoenix companies—which effectively rise from the ashes of a liquidated company.
The impact of that practice is best illustrated by a recent example from my own constituency, in Skelmersdale, involving a company named Coppernob Group Holdings plc, which recently made 510 north-west workers redundant.
Before I continue, I want to show the House the most recent fax that I received from that company's solicitors, in which they attempt to prevent me from—

§ Mr. Speaker
Order. That kind of visual aid should not be used. I ask the hon. Member to make his case orally.

§ Mr. Hind
This fax contains a threat—

§ Mr. Speaker
Order. It is not necessary to have such a document shown on television. I repeat, the hon. Member should make his case orally.

§ Mr. Hind
I was trying to make the point that, in introducing my Bill, I have been subjected, in performing my duties as a Member of Parliament, with threats of being sued and of injunctions. That has been done in an attempt to prevent me from carrying out my duties as the Member of Parliament representing Skelmersdale. That was my purpose in showing the fax to the House. It arrived at half-past four yesterday afternoon.
The Coppernob group of companies consists of Coppernob Group Holdings plc, which has two shareholders. The major shareholder and chairman is an American, Mr. G. I. Fields—"Just call me Giffy" to his friends, but now known in Skelmersdale as "Mr. Sleaze"—and Mr. Ashok Shah. The holding company owns exclusively—with the exception of one share held by Mr. Fields—a number of subsidiary companies.
In 1989, a company named Response, which manufactured textiles, predominantly for Marks and Spencer, and owned four factories in north-west England, went into receivership. In March 1990, Coppernob Group Holdings purchased three of the factories—those at Wigan, Warrington and Skelmersdale—their machinery, and other assets from the receiver, and set up a shell company named Coppernob Manufacturing Ltd. That wholly owned subsidiary bought what Mr. Fields calls "the business"—the company's work force, order book, and good will, but no assets. The company could only run with an overdraft guaranteed by the holding company.
782 That division of assets from the work force was clearly set up to avoid damaging the holding company if the subsidiary failed and to evade statutory obligations to the work force. That is a perfectly legal but extremely sharp and dubious way of doing business.
After 10 months of trading, on 11 January 1991, Coppernob Manufacturing Ltd. failed, losing more than £750,000 to Coppernob and over £500,000 to the taxpayer.
The Wigan work force of 180 were made redundant, but, as Coppernob Manufacturing Ltd was a subsidiary having no assets, its work force were sent down the road to the Department of Employment to receive redundancy payments, which were less than their statutory entitlement. That cost the taxpayer £552,812 in lost PAYE, income tax, national insurance contributions, and value added tax.
We then saw the rising of the phoenix company. In a deal between the liquidator of Coppernob Manufacturing Ltd. and Mr. Fields, the business in the remaining two factories in Warrington and Skelmersdale, employing 330 workers, was transferred to an existing Coppernob shell company having a turnover of £25,000, known as Team Spirit Ltd.—and not to the holding company. That transfer was made at a cost of £20,000, plus stock.
Team Spirit Ltd. failed four months later, on 3 May, and 330 workers were made redundant. Again, Team Spirit made no contribution to their redundancy payments, as the company had no assets. Some £252,000 was lost by Coppernob Holdings Ltd., but £1.2 million by the taxpayer. This left the unacceptable situation that, after two liquidations of subsidiaries, the holding company still held £1.75 million-worth of assets, but 510 employees had no jobs, no redundancy payments and in some cases no unemployment benefit because there had been a failure to meet the full national insurance contributions. Even Barnardo's and the local hospice lost money from the payroll giving scheme.
The work force then suffered the indignity of a double-page spread in the Daily Mirror on "top fashion house" Coppernob Ltd., two weeks later, followed by a two-thirds-page competition sponsored by the company. The work force would like to have won a prize in that competition, but all they wanted was the contractual redundancy payments that the operation of this company had denied them.
The loss to the taxpayer from these two phoenix shell companies is approximately £1.75 million, which could have been spent on schools, hospitals, pensions and social services. Instead, it is propping up the shady operations of Mr. Fields and his associates. The uncaring, cavalier attitude of Mr. Fields and Mr. Shah, who are really asset-strippers with the commercial standards of the gutter, is to be deplored.
The Conservative party has often been accused of association with this sort of thing, but Mr. Fields is not a Conservative. He spent most of his time in the factory telling the work force that he was a member of the Labour party and a friend of the Leader of the Opposition. No doubt the Leader of the Opposition will join me in condemning this shady behaviour. Mr. Fields's concern for his fellow man ended every time that he reached for his wallet. I see no reason why the law should allow doubtful business men like Mr. Fields an opportunity to exploit a loophole in the law at the expense of the public and the work force. The Bill will sort out a part of the law in which there is lack of clarity—that on the transfers of undertakings.