Insolvency (Amendment) (EU Exit) Regulations 2018

Lord Fox Excerpts

Tuesday 15th January 2019 Lords Chamber

[Lord Henley]

My Lords, it is my intention so to do, and I was coming to address the points made by the JCSI. This is a perfectly regular procedure. The noble Lord is very experienced in dealing with statutory instruments and with reports from the JCSI. It often happens that a report will come with criticism from the JCSI. The department then issues its response, and that should deal with the matter. I was going to come to this in my opening remarks and it is right that I should do so. The noble Lord will be able to listen to my explanation and, I hope, will accept that I, and the Government, have dealt satisfactorily with the concerns that the JCSI put to us. We greatly respect the JCSI. It does a very good job and we are very grateful for that. Back in the long-distant past, the noble Lord—like most of us—probably served on the JCSI and, if he had that honour, I am sure that he did a very good job in so doing.

This instrument recognises that, as we leave the EU, our European Union (Withdrawal) Act will automatically retain a version of EU regulation in UK law. However, the safeguards that the regulation provides can no longer be relied upon as the remaining member states will no longer be bound by them in respect of the UK. Many in the professional insolvency sector have argued that reciprocity is an essential part of continuing with this legislation. In the absence of a deal, it is vital that we do not indefinitely continue to apply EU rules that could override our own law and prevent us from dealing effectively with insolvencies in the UK.

The instrument therefore repeals the majority of the EU insolvency regulation, retaining only the small part necessary to keep the right to open proceedings in the UK. It provides for an orderly wind-down of the arrangements by continuing to apply the current EU rules to existing cases where main insolvency proceedings are already open on exit day. But, as a safeguard, the courts may disapply the EU rules where they will lead to a different outcome from that which would have been the case before we left.

I come now to the JCSI report, which the noble Lord, Lord Foulkes, has kindly brought to the attention of the House. I assure the noble Lord that I had every intention of raising this subject. The report refers to a lack of clarity—the noble Lord no doubt has it before him—and an unexpected use of the withdrawal Act power. I am confident that the provisions are an appropriate use of the power in the withdrawal Act. The provisions will give the court the necessary discretion to respond to unexpected outcomes from the interaction between our law and that of EU member states. There are precedents in existing insolvency legislation providing the court with the broad discretion to make orders in insolvency proceedings.

If, following EU exit, UK creditors or others with an interest in the insolvency are being treated unfavourably, it is only right that the court is allowed to apply the powers in our own cross-border insolvency regulations—which are used for non-EU insolvency proceedings—or make some other appropriate order to resolve the situation. The detailed examples that we provided to the JCSI demonstrated just some of the situations in which this might arise, and these examples were included within the JCSI’s report.

The instrument also amends certain employment legislation which ensures that protection for employees is retained following the insolvency of their employer. This ensures that the current financial support given to UK-based employees when their employer in the EU becomes insolvent will continue after exit day. In the absence of a Northern Ireland Executive, the instrument updates and makes similar changes to the law on insolvency and employment rights in Northern Ireland, on behalf of the Northern Ireland Government. I commend the regulations to the House.

[Lord Fox (LD)]

My Lords, in addition to the concerns which were very importantly raised on the nature of the drafting involved here and the use of powers, I have a couple of major technical quibbles. At the risk of treading into what may be the patented territory of asymmetry, which was just discussed, we seem to be back in an asymmetrical relationship here. We are changing our rules in the hope that Europe will reciprocate. That is my interpretation; if it is wrong, perhaps the Minister can update me. How forlorn or optimistic is this hope? What hope do those employees have of their rights and benefits being preserved—the Minister rightly highlighted that we need to have these processes in order to preserve them—for businesses which cross not just into the United Kingdom but into the rest of Europe?

The Minister’s point about courts was very interesting, because that of course was what the European Court of Justice was for: dealing with cross-border disputes over a similar group of rules. What the Minister describes is complicated, expensive and fraught with the possibility of failure. Perhaps the Minister can explain what benefits we will reap from substituting what we have today with what his department has set in front of us. So I have serious concerns that there are major problems with this SI.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the Minister for introducing this issue. The SI seems to be welcomed by many in the industry and deals with a particularly difficult issue in a very constructive way, according to reports from those who have written to us. I agree with the points made by the noble Lord, Lord Fox. When the Minister responds, it would be interesting if he could be quite clear about whether the SI covers the minimum necessary to get the statute book in order if there is no deal, or whether, as he suggests, the Government will go a little further and lay out some sort of attractive regulatory pas de deux for the EU post Brexit which would make it easier to legislate for an asymmetrical solution. That is probably not quite what is happening here, but it would certainly be interesting to get the Minister’s response.

Given that the results are coming in of the vote in another place in which the Government’s proposals have been roundly defeated, we may be witnessing a transition to a slightly different arrangement, which we do not need to comment on just yet. In the circumstances it would perhaps be best to let the Minister respond to the points made. I hope to hear from him very shortly.