I hope Lords Reform isn’t going to go the same way as the AV referendum (ie pear shaped) but the omens are not good.

Nick Clegg is making the case and that is probably the kiss of death.

I hope not.

I have been saying for years that what we need is a small, elected upper chamber. Not one stuffed full of cronies and patronage peers.

After a burst of activity in 1999 when most of the hereditaries were kicked out, Labour Ministers spent years navel gazing taking their cue from Tony Blair.

Blair was never in favour of an elected Lords but he skilfully concealed that fact for years, slowing reform to a snail’s pace.

So where are we now?

After last week’s statement by Clegg, barons and baronesses popped up to say there was no appetite for reform. It was a “third term issue”.

That’s just another way of saying it should never happen.

Amongst the great and good we have crooks, con men and past tax dodgers legislating for the rest of us.

The Lib Dem peer, Lord Tyler says,

…the case for reducing the number of peers is compelling: increasing costs; not enough room for all to get into the chamber or have desks; the Lords is an excessive size compared with the Commons; and (most persuasively) "damage to the credibility of the house occasioned by the large number of members who take no active part in proceedings".

By my reckoning, in the current Parliamentary session 178 peers have uttered not a single word in the Chamber nor have they tabled any Parliamentary Questions.

Others shamelessly follow their own agendas.

Lord Ashcroft, who cheated his way into the Lords in 2000, rarely speaks in the Chamber but is becoming hyper active at tabling PQs about parts of the world where he has an interest.

The Turks and Caicos Islands is a favourite. He is now asking Ministers whether they want to appoint a businessman or a politician as the Governor when a vacancy arises in August.

Ashcroft is, of course, a Turks and Caicos Islands “belonger” with extensive business interests there.

He is also a politician.

Is he thinking what I think he is thinking?

Silentnight: and the Pensions Regulator

Silentnight, the UK’s biggest bed manufacturer and one of Barnoldswick’s biggest employers was taken over earlier this month by the European arm of an American private equity outfit, HIG Capital.

Local people breathed a sigh of relief that 1,250 jobs had been “saved” but what about the many members of the company pension scheme who are going to get a lot less than they bargained for? In some cases up to a third less.

We read that the Pensions Regulator is to investigate. When is this going to happen? And, if it doesn't, why not?

HIG bought the company for a song, in the process dumping Silentnight’s £100m pension liabilities into the lap of the Pension Protection Fund.

They did this using a “pre-pack” or pre-package sale which allows a company in distress to continue as a going concern while offloading its debts.

The new business arises, phoenix like, with the same employees, often with the same management, operating out of the same premises, making the same products as before, advertising the same brands but, magically, debt free. In fact, a bit like Silentnight.

The Office of Fair Trading has had a look at the issues and says the regulatory system has to be tightened up. I think we can all see a few loopholes just waiting to be closed.

The crisis was triggered when Silentnight’s bankers, the Clydesdale Bank, part of the State owned RBS Group, withdrew credit facilities and demanded the repayment of £8.7m in February. That put the skids under a company that was making half a million beds a year and making a modest operating profit.

Into the vacuum steps Bayside Capital, HIG’s “debt affiliate” who bought the “senior debt” from Clydesdale, giving them a prior claim over other creditors and, with it, the ability to tip Silentnight into insolvency – which is what they did.

Silentnight’s Chief Executive, Neil Mernock, says attempts to keep the company afloat by persuading creditors through a Company Voluntary Agreement to accept less than they were owed were torpedoed by the Pensions Protection Fund.

Commercial creditors were being offered 65p in the £. That was bad enough but the PPF was offered a take-it-or-leave-it 6p in the £ plus a 10% share in the company equity.

Clearly, the PPF felt the offer was derisory and that it was being taken for a ride.

The PPF, which opened for business in 2005, is the home of 283 pensions schemes whose companies have gone bust. It is funded by a levy on pension schemes amounting to £720m in 2010/11.

The Pensions Regulator explains:

“In this case, discussions with the PPF never resulted in a realistic offer which treated the pension scheme fairly with regards to the position of other creditors. The PPF considered the offer insufficient in light of the debt owed to the pension scheme, the outcome which other creditors would have received and the potential for Silentnight to generate profits.”

It is certainly true that Silentnight is no basket case. According to Mark Kelly of HIG Europe:

“Silentnight is a strong profitable business with a leading position as the largest manufacturer in its sector throughout the UK and Ireland.”

The new owners say the company “has been starved of capital for many years but still retains a strong brand with a powerful market presence.”

Although Silentnight has a 21% market share and makes half a million beds a year, it was dragged under by the weight of its pension fund and those of other companies it acquired over the years as the firm expanded.

I am left wondering what the auditors were doing when they saw the pension liabilities rising inexorably. Looking out the window instead of going through the books?

Some commentators say private equity isn’t to blame. On the contrary, HIG is doing everyone a service in getting a mismanaged company back on its feet. They say it is too bad about short-changing the pensioners but that’s life.

Surely that brazen attitude should persuade the Pension Regulator to stir itself and do the right thing.

Attachments:

house-of-lords-reform-draft-bill.pdf

[House of Lords Reform Draft Bill]

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