Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

Lord Leigh of Hurley Excerpts

Monday 6th September 2021 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, I beg to move that this Committee approve the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021, which were laid before the House on 21 June 2021.

The emergence of the Covid-19 virus has posed the greatest threat to our way of life in a generation, and the past 18 months have been a challenge for us all, both as a nation and as individuals. The essential restrictions placed on our day-to-day activity have saved lives and limited the spread of the virus, but they have of course placed unprecedented pressures on many businesses. I am sure all noble Lords will share my optimism that the early signs of a strong recovery signal a return to normality. However, many businesses are not out of the woods just yet.

The four-step road map offered a road back to normal life while our world-class vaccination programme was successfully rolled out. Each step of the road map was implemented to safely reintroduce social contact for businesses, schools, activities and events based on the contemporaneous data. Step 4 was successfully launched on 19 July and led to the removal of all legal limits on social contact and the reopening of many premises. I am delighted to report that as of today, 6 September, more than 60% of the UK population are now fully vaccinated, and 71% have received their first dose.

Since the start of the pandemic, the Government have put in place an economic support package totalling £352 billion through the furlough scheme and the Self-employment Income Support Scheme, support for businesses through grants and loans, and business rates and VAT relief. In March, during the Budget speech, the Chancellor announced a generous extension of economic support for businesses and individuals, with many schemes continuing well beyond the end of the road map to help businesses to bounce back. The Government continue to support businesses by once again extending this key protection to prevent companies being forced into liquidation where their debts are due to the effects of the virus.

It has been widely reported that although many businesses are now open and trading they have continued to feel the effects of the periods of shut-down and limited trading over many months, and it will take some time for them to get back to normal financial health. This instrument will help companies while they get back to more normal activity by extending to 30 September 2021 a measure first introduced by the Corporate Insolvency and Governance Act 2020: specifically, the temporary suspension on issuing statutory demands and the restrictions on company winding-up petitions.

This measure has been extended several times by regulations, most recently from the end of March to 30 June, and this instrument seeks to extend it a further time, giving businesses the chance to trade free from creditor action to liquidate them for debts that arose because of the unique situation that many businesses have been in. This extension will allow them to sort out any financial difficulties that have arisen during the enforced restrictions over the last year or so, while the economy gets back to normal.

Since its introduction in June last year, the measure has protected many viable companies from aggressive creditor enforcement action during really difficult trading times. The temporary restriction on company winding-up petitions means that anyone who wishes to wind up a company that has not paid its debts must satisfy a court that those debts are not Covid-19 related. This extension aims to give many companies much-needed time to get back on their feet as the economy begins to return to normal: time for them to generate income, take advice, reach out to their creditors and, where appropriate, time to restructure.

The Government have helped companies while they had to stay shut, and, now that they are able to open, it is crucial that we do not withdraw that help prematurely before they are given the chance to trade back to financial health. Although this measure is intended to help companies that may be subject to aggressive creditor enforcement, the Government have always been clear that it is not to be seen as a payment holiday. Where companies can pay their debts, they should do so.

I know that many businesses and their business representatives will welcome the continued support that these regulations offer, but of course I also acknowledge that this measure will mean a further period of uncertainty for creditors where their rights to enforce recovery of their debts are temporarily restricted. We do not take this action lightly, and we are very aware of the impact on creditors. However, as I have said, the measure is intended to help those in financial difficulty as a result of the pandemic and must not be used as an excuse to avoid payment. So where a company can pay its debts, of course it is right that it should do so.

We will continue to monitor the situation carefully, consulting with stakeholders and the business community to determine what further action may be necessary when these regulations expire at the end of this month. I commend these regulations to the Committee.

[Lord Leigh of Hurley (Con)]

My Lords, I declare an interest. Since we last debated this subject, I have become a non-executive director and chairman-designate of Manolete Partners plc, an AIM-listed company involved in insolvency litigation. Therefore, I have a vested interest in addition to my other business interests.

I again congratulate the Government on the swift and decisive action taken with the introduction of this legislation in responding to the economic crisis. We did not agree on every aspect of the legislation, particularly some details of the moratorium, but we did agree on the direction of travel and the effect that all this has had. This debate is of course in respect of regulations which, as I understand it, expire at the end of this month, so although necessary, because of the way the regulations are drafted, it is probably the shortest-term effect of any regulation that has gone through this House.

More important is to know and understand what will happen after the end of this month. A number of us would argue that the time has come to relax these regulations and to rely on the market in which this Government have such faith. The market will determine which companies should have more capital allocated to them, which companies are zombie companies and which companies do not have a future. That will be decided partly by creditors and partly by people choosing whether to invest in companies that need such cash to face creditors.

It is interesting to look at the situation regarding creditors’ voluntary liquidation. Creditors’ voluntary liquidation is essentially when directors decide to throw in the towel because the business cannot carry on of its own volition. The figures published by the excellent Insolvency Service just the other day show that the level has returned to pre-pandemic levels, about 2,800 companies in the last quarter, which is roughly where it was pre-pandemic and is constant. So the market is returning to normal where it can. I very much hope that the Minister can give us an indication soon of the Government’s thinking on this extremely important issue.

[Lord Sikka (Lab)]

My Lords, there are many industries that are still not fully on a path to recovery, good examples being hospitality and events management. If we are thinking about terminating this legislation at some stage, surely before we do that the Government will have to present us with some evidence of what the impact of the cliff edge will be on those and other industries.

Clearly a cliff edge is looming, although the can continues to be kicked down the road. What will happen when suddenly, as has been said, you let the market forces rip? What will be the effect of this legislation upon creditors who would perhaps have expected to have some recovery but who now must wait to recover? Clearly there is a knock-on effect, but the Government have not really presented any estimate of that. When the cliff edge comes, what restraints will be exercised by banks, private equity, hedge funds and other secured creditors, or will they all simply be rushing to collect their resources, collect their money, and put businesses into liquidation? That will clearly have a huge negative effect.

The Government need to present us with a plan. What exactly is the value of the debts that are affected? How many businesses? How many creditors? We have heard absolutely no information from the Government. When market forces are allowed to rip, what exactly would be the constraints on the insolvency practitioners who charge mega sums for insolvency fees that actually worsen the crisis? The BHS liquidation began in 2016 and is still not finished. Carillion began in 2018 and is still going. Thomas Cook is still going. Maplin is still going. Monarch Airlines and many others have been going for decades and decades. There seems to be absolutely no check. If the Government are really planning ahead, they need to present a plan about how they are going to constrain the insolvency industry. We have not really heard anything about that. I have asked in PQs for information about the values that unsecured creditors may lose. I am told that the Government have no figures. Again, I ask: what is the Government’s plan to deal with the cliff edge ahead?