Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021

Lord Bourne of Aberystwyth Excerpts

Tuesday 18th May 2021 Grand Committee

[Lord Bourne of Aberystwyth (Con) [V]]

My Lords, I thank my noble friend for setting out so clearly the effect of these extension regulations. I support these extensions, as I have done previously—this is not the first time we have been here, of course—but I have some questions for my noble friend.

The Corporate Insolvency and Governance Act 2020 introduced the new stand-alone moratorium procedure for companies. This had been proposed earlier and was, of course, very much a pre-pandemic proposal. Most of the other legislative changes in that Act were driven by the pandemic, and quite rightly so. Given that the moratorium procedure is central to some of the context of these regulations, I wonder whether my noble friend can update the Committee on the number of moratoriums that have been applied for, although I appreciate that that statistic might be difficult, the number granted, which should be more straightforward, and the number that are live today.

Few would argue—and I do not do so—that those businesses impacted by the Covid pandemic and which find themselves in financial difficulties, unable to pay their debts because of the pandemic, should be granted a breathing space, which is what these regulations seek to do. I support that. What I do not understand, and it is not apparent from listening to my noble friend, is why the length of the breathing space varies according to different areas of activity under the regulations.

Protection of companies from creditor action on statutory demands and winding-up petitions lasts only to 30 June 2021—I note in passing that that is not far away, and I suspect we will be back here again, probably after the event, to extend this period, which I do not necessarily disagree with. On the other hand, protection for the operation of the company moratorium goes on to 30 September 2021. Protection for directors and shadow directors from the wrongful trading provisions lasts only to 30 June 2021. There is no explanation in the regulations for the different end dates, other than the somewhat cavalier statement in the Explanatory Memorandum that

“the extension for each measure has been determined having regard to the nature of the measure in question.”

This seems somewhat circular to me. What is it inherent in the nature of the statutory demand versus the moratorium that requires a different end date, particularly, as I say, given that I would be surprised if we are not asked to extend these dates again? I believe I raised this issue on our last outing.

As I have said, I support these provisions, but we need to recognise—to be fair, the Minister made this point too—that, notwithstanding the small business carve-out exemption, these measures are an interference with the normal rules of insolvency, and indeed the normal rules of trading. However, a year into these restrictions—my noble friend referred to them as temporary, and I think we are going to have to revisit that word before too long in this context—there has been no consultation on them. The Explanatory Memorandum does however state that the

“Government has engaged informally with a range of stakeholders”.

The Minister in passing made reference to a welcome, I think, from business. The Explanatory Memorandum also refers to engagement with

“business representative organisations and investor groups on these matters.”

Can my noble friend tell the Committee what groups these were, what the nature of the engagement was and what the groups said? That would be important for us in these proceedings.

Lastly, I turn to the position regarding wrongful trading. I note what my noble friend said about the suspension of liability for wrongful trading for directors and shadow directors, and I wonder why this part of directors’ liability has been seized upon. My noble friend noted, I think with approval, that other liabilities in relation to directors’ duties, disqualification and so on are unchanged. Why, then, have the Government singled out wrongful trading as a particular area to suspend during this period? It is not clear to me. There may be some reason, and I would be grateful if my noble friend could enlighten us on that.

Subject to these caveats and concerns, I support these regulations.