Professor Irene Lynch Fannon:

There are other issues surrounding the effectiveness of collective agreements and the incorporation of terms of collective agreements into contracts of employment. However, I am before the committee as chair of the insolvency law committee. The issue with enhanced entitlements under a contract of employment will of course refer to the unfortunate situation the Debenhams workers found themselves in, but we must bear in mind it would also refer to any class or kind of employee where you would have, for example, very highly paid management with very generous redundancy entitlements under contract. That is what the section being proposed refers to.

The idea of enhancing the class of preferential creditors has knock-on effects because of the priority system I have already described. In particular, it pushes down the ladder the cohort of unsecured creditors where you would find SMEs and suppliers. As Mr. Egan mentioned, there is a general resistance in corporate insolvency policy to enhancing the list of preferential creditors because of the knock-on effects. This might not be of concern to the committee but it also changes the lending environment where preferential creditors take precedence over floating charge holders, or lenders with secured debt. That is of concern depending on which side of the stakeholder transactional issues one might stand. We also noted that in other countries, including neighbouring jurisdictions, preferential status had been abolished for some time for revenue because of the consequences of enhancing the preferential status. That is now being rolled back, but there was concern for the unsecured creditors and the SME sector. That encompasses the reasons we outlined, in brief.