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

Baroness Altmann Excerpts

Thursday 17th December 2020 Lords Chamber

[Baroness Altmann (Con)]

My Lords, I thank my noble friend for introducing these regulations and for his clear explanation. I also congratulate the Government on being the first in the world to roll out vaccinations to try to combat this pandemic, and on all they have done to try to protect businesses and jobs.

It is of course important to avoid businesses failing due to the impact of the pandemic and the associated restrictions on trading that the Government had to introduce. Of course, we must protect viable businesses in the current unprecedented circumstances. However, I wish to register my own concerns, which were echoed by the Secondary Legislation Scrutiny Committee’s report, about the measures in Regulation 2(1). These provide for an extension of the suspension of wrongful trading rules, such that company directors cannot be held liable if the firm’s financial position worsens. By the way, I welcome the exceptions for some of the financial firms holding client money.

The period from 26 November 2020 to 30 April 2021 puts creditors at risk. There is a valid concern that without any impact assessment—which I understand, given the emergency—there are serious risks that the suspension of directors’ exemption from personal liability and having to contribute to the assets of the company if it becomes insolvent could represent a blanket exemption, and a carte blanche, which would have broader consequences than originally intended.

I note, and am grateful for, my noble friend’s comment that these measures will be kept under review, and that should any poor practice be seen to be significant they will, potentially, be reviewed. But there are concerns for creditors in firms that might continue trading without the fear of consequences or the impact on those to whom the business might owe money, even if they know that the company is going to fail. I would be grateful if my noble friend could comment in a little more detail on the concerns raised by the committee, particularly in light of the assurances given to the House on Report for the then Corporate Insolvency and Governance Bill. It was said then:

“The suspension does not mean that a struggling company could just carry on trading without any regard for the consequences, but that, if it unfortunately enters insolvency, the directors will not face personal liability for using their best endeavours and trading while the pandemic is having such an impact on businesses.”—[Official Report, 23/6/20; col. 200.]


I understand that reassuring directors that carrying on their business in the light of problems raised by the pandemic is important. We do not want viable businesses to fail that otherwise would not need to.

However, this absolute exemption raises concerns. Again, I note that my noble friend suggests that there are other protections for creditors such as the rules around fraudulent trading and misfeasance. Can he expand a little on how these protections would help creditors where a director has used the opportunity to continue running the business, taking a salary and depleting whatever is left of the corporate resources, even knowing that the company will fail through nothing to do with the impact of the pandemic? There is no ability to take action because the courts are being told to disregard it, in all circumstances.

I also welcome the flexibility given to companies to extend to the end of March the period over which meetings need to be held, and I congratulate the Government on this practical measure, which I hope all noble Lords will support.

I recognise that these are not easy judgments, but I would be grateful if my noble friend could reassure the House on that point. Once again, I congratulate the Government on all the hard work that they have been doing and my noble friend and his department on all their work to protect and preserve businesses and jobs during this difficult time.