Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020

Lord Stevenson of Balmacara Excerpts

Thursday 17th December 2020 Lords Chamber

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I thank the Minister for his comprehensive introduction of the statutory instrument and the other speakers for the points that they have made. I declare my interest as a retired fellow of the ACCA.

During the discussions on the Bill, this was probably the most contested part of the mixture of temporary and permanent changes that were made. It is interesting that that remains the position. The other changes seem to have settled reasonably well, though perhaps it is that we are relatively close to those changes and do not have all the information or evidence for them yet.

The issues that were most in people’s minds during the debates on the Bill were the signals that might have been sent out to those who might perhaps be considering breaking the law in relation to personal liability issues, by knowingly trading when they were likely to be insolvent. It is difficult to judge that in relation to the coronavirus, but time has obviously moved on and perhaps we now have a better understanding of the impact of this on our economy and the way in which we need to respond.

It is interesting that the department, despite being pressed in this House on the point, decided not to renew the original period of time under which this provision was brought in. As the noble Baroness, Lady Bowles, just mentioned, there is therefore a lacuna from 30 September to 26 November in which these powers did not exist. Presumably there will be court actions and evidence that we will be able to pick up later in the year about how this happened and from which we can learn. It is surprising that we do not seem to have any evidence about how many companies are involved. We do not really know—and will not for some time—what the impact will be. There is no impact assessment. As the Explanatory Memorandum says very clearly, this is indeed a judgment call. What has changed between the decision presumably taken not to renew this in September 2020 and the decision now to extend it, even though there will be a gap? Can the Minister help us on that?

The point raised in the report of the Joint Committee on Statutory Instruments is very interesting. The Minister answered this to some extent, but basically reasserted the department’s view as reported to the committee. Would he agree that this raises more of a question about how proceedings should be taken in the future on the question of where the evidence and balance of proof need to lie for the courts to make a decision that a director—or directors—has behaved against the law? There are obviously two options here, and it would be interesting to get a response, even if it is only that this is something that will need more work.

The broader point made by the noble Baroness, Lady Bowles, is important here. There are, increasingly, issues that need to be picked up around insolvency, corporate behaviour in relation to it and the way society judges it. This is a point we have made before, and it is still being broken down. Paragraph 7.6 of the Explanatory Memorandum lays out all the various ways in which creditors have retained protection when wrongful trading is proven. But it is a very complicated world: misfeasance, fraudulent trading, disqualification proceedings and compensation orders are all very different and rather expensive ways of trying to take forward any issue that one might have in relation to liquidation and the conditions under which personal liability might arise. I would be interested to know from the Minister whether the department will be looking at this in due course. A number of issues relating to company law will need to be addressed over the next few years; this might well be another point to take forward.

Finally, on the question of AGMs and the different arrangements to apply, these are sensible proposals; it is good that regulations are being extended. But it raises the question we raised last time of why some of these are not made permanent. Special considerations apply to charitable companies and SMEs, but relaxing the rules that require physical meetings seems appropriate for the long term, now we are all more used to working virtually.