Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2020
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Lord Callanan
That the Grand Committee do consider the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2020.
Relevant document: 40th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, since the emergence of Covid-19, the Government have been swift to act and provide businesses with help and support to give them every chance to survive and get through this difficult period of uncertainty. Since March last year, businesses have benefited from an unprecedented package of government support targeted at saving jobs and livelihoods, such as the furlough and job retention schemes, as well as billions of pounds in loans, rates relief, tax deferrals and grants.
Today, all areas of Great Britain are again subject to restrictions put in place to limit the spread of the virus and to help save lives. These restrictions are crucial to prevent our NHS from being overwhelmed and we wait for everyone to be vaccinated. But until life returns to normal, we have to recognise that the impact on business is severe and continuing. The adverse effects that these essential restrictions continue to have on many businesses, particularly those in the retail and hospitality sectors, have been well documented and well debated in our House. Once again, the Government have acted quickly following the introduction of the latest national restrictions, with a new £4.6 billion package of lockdown grants to support businesses and to help protect jobs.
These regulations, which were laid before the House on 9 December 2020, will continue to help companies by extending the temporary suspension on using statutory demands to wind up companies and other restrictions on company winding-up petitions to 31 March 2021. First introduced by the Corporate Insolvency and Governance Act 2020, these measures were extended from the end of September 2020 by order to 31 December and this instrument seeks to extend them further. The measures, like others in that Act, are aimed at supporting directors in guiding their companies through the period in which business is being affected by the current pandemic. Since their introduction in March last year, these temporary measures have helped to protect many viable companies from aggressive creditor enforcement during unprecedented trading conditions.
The temporary restrictions on company winding-up petitions that the regulations seek to extend mean that a petitioner must satisfy a court that any debts are not Covid-19 related. In this way, companies that would be viable but for the effects of the virus will not face action from creditors seeking to wind them up because they have been unable to pay their debts due to the trading restrictions that have been necessary to protect our citizens and the National Health Service. This extension will further help to support companies while national restrictions continue to affect the trading capability of many of our businesses.
While these measures are intended to help companies that may be subject to aggressive creditor enforcement, the Government have been clear that they are not to be seen as a payment holiday. Where companies can pay their debts, they should, of course, do so. It is important to note that these measures aim to encourage forbearance and do not extinguish any existing creditor rights or interests.
In addition to the protection that this measure gives, it is also intended to give those companies with unavoidable accrued arrears caused by the pandemic time to take advice from restructuring professionals and to negotiate and reach agreements with their creditors wherever that is possible. I know that many companies have done so successfully and I am grateful to them, but I urge others to do so and to plan for the post-Covid future with confidence.
I know that many businesses and their business representatives will welcome the continued support that these regulations will give them during this very uncertain time. But I also recognise that these measures will mean a further period of uncertainty for creditors where their rights to enforce recovery of their debts are temporarily suspended. The Government continue to ask for forbearance in allowing people and businesses to meet their debt obligations during these difficult and unprecedented times. As I said, these measures do not extinguish any existing rights or interests. Instead, they temporarily remove one mechanism for enforcing a debt and therefore provide additional protection to companies in distress as a result of the virus. A variety of other debt enforcement methods will remain. We think it is right, therefore, that any consideration of an extension and for how long should be done on an individual basis, rather than in the round, considering all the circumstances and potential impacts.
In conclusion, we do not take this action lightly and we will review carefully before taking any further decisions when this extension period expires at the end of March. Therefore, I commend these regulations to the House and I beg to move.
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
I inform the Committee that the clock is not working currently and remind them that speeches are limited to six minutes. I call the next speaker, the noble Lord, Lord Sikka.
Lord Callanan (Con)
Let me first thank all noble Lords who contributed to this debate. I thought it was an excellent discussion and the points raised have highlighted the importance of the measures being extended by these regulations and the necessity we feel for extending them so that businesses can continue to benefit from them.
Since the emergence of Covid-19, businesses have continued to face an exceptionally challenging time, with many unable to trade, or their ability to trade at full capacity restricted due to social distancing measures. As I said in my opening speech, since March last year, the Government have provided businesses and their employees with a comprehensive package of support targeted at saving jobs and livelihoods, including the furlough and job retention schemes and billions of pounds in loans, rates relief, tax deferrals and grants.
Let me attempt to address some of the issues raised in the debate. The noble Lord, Lord Sikka, made a number of important points and asked in particular what the Government are doing to make long-term plans when these temporary measures end. I can assure him that we continue to keep these matters under review, and will of course always keep in mind all the various provisions in what we think is our world-class insolvency regime, to ensure that it remains fit for purpose.
My noble friend Lord Bourne asked about the different timescales for all these measures. He makes a good point. Following the expiry of the wrongful trading measure at the end of September last year, the country entered a new phase of national restrictions, necessitating the urgent reintroduction of the wrongful trading temporary measures in the Corporate Insolvency and Governance Act, which of course could not be made retrospective, whereas this measure was already in force and was not due to expire until 31 December 2020.
My noble friend also asked how temporary these measures are and whether there was any impact assessment. We of course keep under consideration the ongoing impact of Covid-19 in the context of the new period of national lockdown, the ongoing effect of social distancing and the potential impact that these measures will have when we determine what measures should be extended and the period of that extension. Because of the temporary nature of the measures, as I am sure my noble friend will understand, a full impact assessment has not been carried out and, indeed, is not required by the better regulation framework. However, the Government have considered, and will continue to assess and monitor, the possible and likely impacts of the measures, their scope and their potential risks.
The noble Baroness, Lady Jones, and a number of other noble Lords, raised the issue of HMRC’s preferential status and the impact on HMRC. That of course does not concern these particular regulations. We work closely with the regulators, the courts and the insolvency profession to ensure that they will be able to scale up and cope with the expected increase in insolvencies. The noble Baroness did not let us down and managed to include references to climate change and environmental factors. As I am sure she will understand, they are not connected with these measures, but I acknowledge her long-term point, which I think is right, about the need for environmental sustainability in businesses. I refer her to the recent announcement by the Chancellor that the UK will implement the requirements of the task force on climate-related financial disclosures, which will require companies to make disclosures of their climate impacts, so there will be an ability to compare across companies and shareholders will be able to take this into account when making investment decisions. The UK is one of the world’s leading regimes in making companies go over to these measures. The noble Baroness will also be awaiting with interest the further measures that will address some of these factors, which will be forthcoming in the review of the audit procedures.
My noble friend Lady McIntosh, the noble Lord, Lord Razzall, and the noble Baroness, Lady Ritchie, asked what plans are being made for the end of these measures. As I said, businesses have already received billions in loans, tax relief, rate relief and grants to support them, and of course we always keep all these measures under consideration. The Government recognise the cliff-edge scenario, which would involve the cumulation of unpaid debts becoming due when restrictions and government fiscal support expire, and I can tell noble Lords that work is ongoing to develop measures to address what we are aware is a potential issue.
My noble friend Lord Bourne also asked about an impact assessment. As I said, we are not required to carry out an impact assessment under the better regulation framework, but of course we take careful note of the issues and what effect they are having.
The noble Baroness, Lady Ritchie, asked why the measures were not made for longer. The temporary measures under the original legislation can be extended only for six months at a time. Of course we realise that they are a serious curtailment, as a number of noble Lords pointed out, of the rights of creditors, so we keep them under constant review to ensure that we get the balance right and that they are not kept in place for longer than is absolutely necessary. When the measures expire, the insolvency regime will return to its normal working practices, including the right of creditors to act to wind up companies that have not paid their debts.
The noble Lord, Lord Razzall, also raised the issue of the impact assessment and asked how many liquidations have been postponed under these regulations and their predecessors since the summer. I do not have those figures for him, but if there is any further information that I can provide him with, of course I will do so in writing.
Finally, the noble Lord, Lord Stevenson, asked how it would be possible for a petitioner to satisfy a court on, as he put it, the negative that the debt was not due to coronavirus tests. That is a good point, but ultimately it is for the courts to consider how to apply that test and whether the failure to pay is not related to Covid-19 in individual cases. The test of whether Covid-19 has caused a company’s difficulties is intended to present a high bar, as I think the noble Lord recognised, temporarily to enforce the forbearance of creditors that the Government have called for.
Extending this measure now to 31 March will provide the necessary certainty that companies are looking for, to provide them with relief in the short term. However, the Government recognise the difficulties faced by many small businesses and sole traders and have introduced a range of support measures, including local restrictions support grants, bounce-back loans, deferred VAT and PAYE payments and, of course, the newly announced job support measure that is due to commence in May.
In conclusion, these regulations will provide much-needed continued support for businesses, allowing them to concentrate their best efforts on continuing to trade and build on the foundations for economic recovery in the UK. Careful consideration has been given to the extension of these temporary measures. As I said, we will continue to monitor this situation closely before making any decisions about further extensions and, of course, at the time we will consult fully with businesses and their representatives. With that, I commend these regulations to the Committee.