Charitable Incorporated Organisations (Insolvency and Dissolution) (Amendment) (No. 2) Regulations 2020

Rachael Maskell Excerpts

Thursday 24th September 2020 General Committees

[Rachael Maskell (York Central) (Lab/Co-op)]

We have important regulations to debate and I thank the Minister for his opening remarks, particularly for his comments on the Pension Protection Fund, which is so important to people working in the sector.

The Corporate Insolvency and Governance Act 2020 had consequential impacts on CIOs, and therefore some variations have had to be applied. CIOs are registered at Companies House and regulated by the Charity Commission. These charitable businesses are separately constructed under law, and therefore have specific regulations to govern them. There are currently around 22,500 CIOs across England and Wales, and the jurisdiction of the regulations covers both England and Wales. However, it is worth noting that CIOs covered by the Housing Act 1996, such as social housing providers, are exempt from the regulations.

The Charities Act 2011 makes provision for insolvency, which was first set out in the 2012 regulations. The Corporate Insolvency and Government Act improves provision for organisations facing insolvency, with additional measures in place. The first set of regulations that appertained to CIOs had to be revoked owing to errors, as the Minister explained, which means there has been a delay in introducing the revised regulations. Will the Minister clarify his comments on the impact that the delay has had? Has any organisation been negatively impacted because of the delay?

I want to highlight that, tragically, these regulations might be called upon in the coming weeks. The voluntary and community sector faces a £12.4 billion deficit. Although the Government brought forward a tiny proportion of that—£750 million—to deal with an increased demand due to covid-19, it was for additionality and not for addressing the core challenge facing the sector. It was barely a sticking plaster over the gaping wound in the sector’s finances. Unless urgent measures are introduced, we could see many CIOs move into insolvency and dissolution. I urge the Minister to take that eleventh-hour issue back to his Department. Too many organisations in the sector are now on the brink.

Today’s measures first seek to provide minor technical modifications to existing legislation. During a moratorium period, for which no insolvency proceedings can be instigated against a CIO or charitable business, the regulations provide a minor degree of protection. The free-standing moratorium period is described as giving an organisation a breathing space during which time some creditors cannot take specific types of enforcement and action. Why are all creditors not put in that position in order to create a proper breathing space for all the organisations at risk? Normally this period is 20 business days, but is extendable with creditors’ consent or a court order. However, we know that 20 business days is no time at all to turn an organisation around, so why was 20 days chosen and what impact will it have? How will the Minister make it easier for organisations to extend that time? More time will be needed. Many of the organisations are large businesses and will need support, but many are also small and dependent on trustees to oversee their affairs.

During this time, an organisation can seek to reorganise its affairs and explore other routes to find a rescue, remedy or even a restructure to try to save the day, but for many it might be too late. Importantly. during this period trustees continue to govern the CIOs, rather than an administrator or other insolvency practitioner. However, an insolvency practitioner does have oversight of proceedings during the moratorium, and if they see no prospect of recovery or opportunity to pay critical debts, they can move to the insolvency process. Will they move to the insolvency process within the 20-day period, or does it extend beyond that?

The process places huge pressure and liabilities on trustees, however, so I urge the Government to revisit it. Some 70,000 trustees across the voluntary and community sector carry out significant work, and I pay tribute to them all. They need greater protections. In the same way, dissolution cannot be applied for during the moratorium.

In the light of the delay, the Government are calling for the immediate enforcement of the regulations, but what impact does the Minister believe that will have? For organisations currently going through insolvency, if they have not started the insolvency process, will they now be able to access the moratorium breathing space, as they would have had the regulations been passed earlier, to give them that benefit and to see if they can rescue their CIO?

We want to provide maximum protection to the whole of civil society at such a difficult time. The sector is fragile, frightened and, despite its extraordinary efforts, failing. Although I support these measures, I trust that the Minister hears that he could avoid the situation arising in the first place if his Department now comes forward with the ultimate remedy to insolvency: proper funding for the sector.