Insolvency (Amendment) (EU Exit) (No 2) Regulations 2019

Lord Flight Excerpts

Monday 30th September 2019 Lords Chamber

[Lord Fox (LD)]

My Lords, I thank the Minister for introducing this SI and for his explanation. I associate myself with the comments of the noble Lord, Lord McNicol, about the necessity for no-deal statutory instruments if the Government are, in good faith, going to follow the law. I notice that the noble Lord, Lord Callanan, is also sitting on the Front Bench opposite, and he has repeatedly said—when I have been in this Chamber and often when I have not—that the Government will observe the law, so I hope that means the spirit as well as the letter. However, the SI has been tabled and it is incumbent on me to make some comments.

It is, perhaps, appropriate that we should be talking about insolvency because, in the event that there is a no-deal Brexit, insolvency will be an issue for many businesses in this country, small, medium and large. Perhaps this gives us a chance to soberly reflect on the stupidity of a no-deal exit. These rules are welcome and it is very hard for us to stand in their way. The Explanatory Memorandum talks about avoiding an “inefficient insolvency process”. What is an efficient insolvency process other than a disaster? In not opposing these rules, I suggest that these Benches do not wholeheartedly endorse the current system on insolvency. There is, many people feel, an overdominance of HMRC’s call on insolvency in the current rules. This is not for debate today, but I put that down as an issue.

The Minister talked about reciprocity, a word that should be used carefully. However, it seems to me that this is a unilateral assertion of reciprocity, which, by its nature, is not reciprocity. What guarantee does the Minister have that the EU 27 will turn this into a reciprocal process and not merely watch us put our cards on the table while they decide not to? Without the EU 27 participating in this, we do not have the systems in place that we need for the Government’s definition of efficient insolvency to apply. Can the Minister tell us what assurances are in place?

Paragraph 2.11 of the Explanatory Memorandum says that we will,

“maintain a modified version of the EUIR’s jurisdictional tests”.

What are the modifications to the EUIR’s test? If they are different, how can we expect the EU 27 to reciprocate in process? I would have thought that the whole idea to keep reciprocity would be to have harmony, rather than modification, between those rules. I wonder what those differences are and how they have been presented to our EU 27 partners.

Paragraph 2.2 of the Explanatory Memorandum says that the other purpose of this statutory instrument is to avoid the creation of uncertainty. There are lots of ways of avoiding uncertainty, but changing the rules governing insolvency is not really the way to do it. There is uncertainty about standards; there is uncertainty about regulation; there is uncertainty about whether people who work for our businesses today will be able to work for them after 31 October. If the Government really are in the business of certainty, perhaps they could address those issues.

Finally, a number of Bills are currently crashed or in the holding tank of the other place. We were told that these Bills were essential to planning for no-deal Brexit. Now we are told by the Leader of the other House that the Government have all the rules they need to manage no-deal Brexit. I find these two positions irreconcilable. Perhaps the Minister can tell us how many more statutory instruments we can expect that will be substituting for those Bills. I remind your Lordships’ House that those Bills have proper scrutiny. They have the right sort of scrutiny that enables us to produce the right sort of legislation. Statutory instruments are not a substitute for primary legislation. They are an unscrutinised version of regulation. To substitute one for the other, which seems to be what the Government intend to do, is wholly unsatisfactory.

[Lord Flight (Con)]

My Lords, the UK has a great advantage over most European economies and the US when it comes to effecting a sorting out and recovery of a business that is failing. Can the Minister confirm that whatever EU rules we may be moving in tandem with will not damage our advantage in sorting out businesses?

[Lord Duncan of Springbank]

My Lords, this has been a short and relatively sweet debate in some respects. There seems to be a recognition that these modest adjustments are necessary, primarily as a consequence of the earlier date not being met. I suspect there is a question about reciprocity. Let me tackle that head on. One of the challenges we have here, even allowing for the legislation made in the other place, is that the situation regarding the EU depends upon the EU. We cannot provide for what it will do in these circumstances. That is why we must be absolutely certain that in any circumstances in this area of insolvency we are legally sound and entirely correct. It would be wrong to do otherwise. However, it is important to stress that if we secure a deal, these regulations will become moot. We will not be pursuing them in that regard, so we will end up in a transition period and then, I do not doubt, the future relationship will examine a number of these aspects and we will see a very different outcome. However, these regulations are necessary. We have spoken with a number of bodies representing those responsible for insolvency to ensure that they are content with the way we are taking this forward.

In relation to some of the points raised by the noble Lord, Lord McNicol, we have looked at this very carefully to establish exactly where the costs rest. Had they been above the £5 million threshold, of course we would have done a full impact assessment. The current assessment is that the figure is £2.7 million and therefore it does not fall into that category. We have done a thorough consultation to ensure that there is no risk whatever that this will suddenly conflagrate beyond that.

As to timing, the noble Lord rightly pointed out that the Scottish Government moved forward its legislation in April, just after the previous proposed exit date. It is not a question of dawdling on our part, but of trying to put these two things together and move them forward, and we would have done so before that exit date in October because it would be necessary to do that. As to the level of consultation with the Scottish Government, it will not surprise noble Lords that we did a thorough consultation with them. One of the Scottish Parliament’s committees did an investigation and affirmed that this was the right approach. We spoke to several bodies in Scotland about this. The changes we are making at this point are relatively modest. They correct the legislation which emerged after 31 March to make sure that it is legally sound. It could not have been done before then because at that point we were not sure what was going to happen by that date, so the legislation could not anticipate the situation in which we ultimately found ourselves. I think the Scottish Government are relatively content, but I am quite happy to provide more information, should that be required, on the official level of engagement that has taken place.

The noble Lord, Lord Fox, made a point about the wider insolvency framework and touched on the balance of powers in respect of authorities. He will be aware that a review in 2016 looked at this. I believe that out of that, some of the issues the noble Lord has raised will be addressed looking at international best practice. We will look at European best practice. It would be foolish not to, given that we are so often involved in cross-border insolvency matters. I expect that in years to come we will see a very different approach to how we examine the wider insolvency question, while also keeping pace with where the EU finds itself.

Both noble Lords asked whether there are any more no-deal SIs. The answer is, not from me. I hope that is the answer they are looking for. I am probably going to have correct that if it is not true. I am nearly certain: not from me, and if I am wrong, I will confirm that later. The important thing to stress is that much of the work I have done today and last week was modest adjustments primarily resulting from the adjustment to the date. It is not my intention to bedraggle you for much longer.

--- Later in debate ---

[Lord Duncan of Springbank]

Absolutely—the modification is with us. However, the point is that broadly the tests are part of retained EU law and we have made the adjustments to make sure that they are compliant with our own statute book.

[Lord Flight]

My Lords, will these changes in any way damage the superior insolvency legislation that this country has at present?

[Lord Duncan of Springbank]

My noble friend is right to remind me of a point that I had almost overlooked by gazing at the Benches opposite. No, it should not damage that legislation. In fact, the UK is a good jurisdiction in which to address insolvency issues. I think that that is widely recognised in the EU and around the globe. We have an advantage there, and if we can maintain that advantage, this will be a place where such law can be made and we can maintain our leadership credentials. On that basis, I would be content to move forward with the regulations.