Draft Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2017

(Limited Text - Ministerial Extracts only)

Monday 5th February 2018 General Committees

[The Economic Secretary to the Treasury (John Glen)]

I beg to move,

That the Committee has considered the draft Small Business, Enterprise and Employment Act 2015 (Consequential Amendments, Savings and Transitional Provisions) Regulations 2017.

It is a pleasure to serve under your chairmanship, Mr Hosie. The draft regulations follow the reforms introduced by the Government in 2015 to modernise and streamline the insolvency process. The 2015 reforms were commenced in stages, and the draft regulations cover the application of the reforms that came into force in April 2017. Specifically, the draft regulations make consequential amendments to the financial sector insolvency regimes to take account of the April 2017 reforms.

For the Committee’s benefit, I will briefly set out where the draft regulations fit in the context of general insolvency law. Insolvency law is based on the Insolvency Act 1986, which has been amended several times, including by the tranches of Government reforms instigated in 2015. That broader legal framework has been modified into specific insolvency regimes for different sectors, including for financial services. The insolvency regimes for the financial sector exist because general insolvency procedures are not always suitable for failed financial institutions. That is because general insolvency law does not necessarily reflect the complex nature of financial institutions and the impact that their failure may have.

The insolvency regimes for the financial sector sit alongside and are separate from the Bank of England’s resolution powers under the special resolution regime established by the Banking Act 2009. The draft regulations do not affect or amend the Bank of England’s powers under the special resolution regime. Instead, they are necessary to update and maintain the legislation governing the modified insolvency regimes for the financial sector following the wider insolvency law reforms that the Government brought forward in 2015.

Let me provide more detail on the 2015 reforms to explain the genesis of the draft regulations. The 2015 reforms resulted in wide-ranging changes to the UK’s general insolvency regime that broadly affected all sectors. Those reforms were implemented in several stages: in May 2015, October 2015, April 2016 and, finally, in April 2017. The draft regulations cover the application of the 2015 reforms that came into force in April 2017, which removed the default requirement to hold a physical meeting of creditors as a decision-making mechanism in an insolvency proceeding, thereby removing unnecessary burdens and enabling the greater use of technology to administer insolvency proceedings. The April 2017 reforms also gave creditors the ability to opt out of certain notices for both company and individual insolvency, reducing the expense of sending notices for the office holder and the expense of dealing with unnecessary and unwanted notices for the creditor.

I will now set out in further detail the effect and rationale of the draft regulations. The draft regulations align the specific insolvency regimes for companies, partnerships and individuals carrying on insurance or other financial activities with the April 2017 reforms, ensuring that the benefits of the broader 2015 reforms to UK insolvency law extend to the financial sector. The draft regulations do not apply the April 2017 reforms to the insolvency regimes for financial institutions that are not companies, partnerships or individuals. Nor do they apply the reforms to specialised regimes, such as those for banks and building societies. For those insolvency regimes, the draft regulations work to keep the legislation as it was prior to the coming into force of the April 2017 reforms. Because of the considerable volume of legislation that is affected, that approach is necessary while the impact of the reforms on those institutions is further assessed and decisions are made about implementation.

In conclusion, the consequential amendments are required to update and maintain consistency in the legislation governing the insolvency regimes for financial sector firms. The Government are committed to improving public and business confidence in the insolvency process, and having clear legislation that governs the process is fundamental to achieving that.

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[John Glen]

I am extremely grateful for the comments of both the hon. Gentlemen. I confirm that the Treasury will work as soon as it reasonably can to ensure that there is the appropriate application of the 2015 Act. In respect of the point that the hon. Member for Poplar and Limehouse made, I acknowledge the range of examples that were brought to the House’s attention, and I assure him that there is ongoing work to be done to investigate the impact of the Global Restructuring Group process. There was an encounter last week between the head of RBS and the Treasury Committee. There is more work to be done, and I will be making further comments in due course in the House.

Question put and agreed to.