Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021 Debate
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Chris Bryant
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Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021
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The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)
It is a pleasure to serve under your chairmanship, Mrs Huq. I beg to move that the Committee approves the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021 (S.I. 2021, No. 1091).
These regulations were laid before the House on 28 September 2021. We are here again discussing another snappily titled statutory instrument after the Corporate Insolvency and Governance Act 2020 introduced a suite of permanent and temporary measures to help companies weather the effects of the pandemic. Most of those temporary measures, including the relaxation of wrongful trading, expired at the end of June this year. However, the restrictions on company winding-up protections were extended for a further three months until the end of September. Since their introduction, those restrictions—despite also being a severe restriction on creditors’ right to enforce recovery of their debts—have helped to protect from unnecessary insolvency the many businesses that were unable to trade due to the national lockdown periods.
Now that we are back to full trading, following the successful completion of the Government’s four-step road map out of lockdown on 19 July, the signs are indicative of a strong economic bounce back. However, many businesses—particularly those in the hospitality, retail and travel sectors that were most affected by the lockdown restrictions for over a year—have been acutely affected, and their solvency will be threatened by accrued debts and low cash reserves before they have been given a chance to trade their way back to financial health. They therefore need a further period of protections to allow them to do so, but as businesses are now trading normally and have been able to do so since the middle of June this year, it is right that any further period of protection given should recognise that fact and bring back some creditor rights.
As such, these regulations introduce a new form of restriction on winding up companies that is tapered from the version that has been in place since last year. To put it another way, we are still protecting those businesses that most need it; we are also promoting a gradual return to the normal functioning of the insolvency framework.
This instrument replaces the previous high bar for winding-up petitions on the ground of inability to pay debts introduced by the Corporate Insolvency and Governance Act—which required that petitioners should satisfy a court that those debts were not covid-19 related—with new targeted criteria for creditors that seek to encourage dialogue with their debtors prior to pursuing a winding up. The new and temporary criteria for petitioning creditors that came into force on 1 October 2021 for a period of six months are threefold: a requirement for creditors to demonstrate that they have sought to negotiate repayment of a debt before seeking to wind a company up; that the debt owed must be at least £10,000; and that a company winding-up petition cannot be brought in respect of a commercial rent, as described by the provisions in the Coronavirus Act 2020.
Starting with the first of the criteria, the new requirement for creditors to demonstrate that they have sought to negotiate the repayment of a debt, before presenting a winding-up petition, the creditor must send a notice to the company giving it 21 days to respond with proposals for paying the debt. Creditors will then be required to confirm to the court that they have sent the notice and whether they have received any proposals from the company, and if so, state why those proposals are not satisfactory. A creditor is not obliged to agree to the proposals put forward by the company. However, the court will be able to draw on its existing discretion to refuse to make a winding-up order where it appears that a creditor is attempting to abuse the winding-up process. The measure will reinforce the message that creditors and debtors should collaborate to find solutions to address arrears accrued as a result of the pandemic.
Chris Bryant (Rhondda) (Lab)
Will the Minister tell us how many companies have taken advantage of this situation thus far, how many companies he expects to fall within this provision over the next few months, and how he has determined that this is the right process for us to adopt at this stage?
Paul Scully
It is difficult to assess that at the moment. We believe that it has helped companies to get through this process, but we are not able at the moment to ascertain an accurate figure.
The second of the temporary criteria is that, in order to present a company winding-up petition, the debt owed must be at least £10,000. For the most part, there is not normally a minimum amount that must be owed before a winding-up petition can be brought, although based on the statutory demand the debt must be at least £750. Analysis suggests that a temporary minimum debt level of £10,000 could prevent in the region of 15% of petitions that would otherwise be presented. They would largely be petitions against small and medium-sized enterprises, which are likely to have smaller debts and lower cash reserves and, as such, are most in need of additional support.
That £10,000 limit also aligns with the existing £10,000 limit for bringing a case to the small claims court, making it easily recognisable as a rule, to prevent winding-up petitions being presented for small businesses and small debts in the aftermath of the pandemic.
Richard Thomson (Gordon) (SNP)
It is a pleasure to serve under your chairmanship, Dr Huq.
The Scottish National party is happy to support the regulations but with a note of caution. If we allow a company to continue to trade in the circumstances outlined, we must be mindful of the potential impact that may have down the line on the cash flow of other companies that are not protected and may find their own position weakened. It is also important to recognise the limitations of the insolvency Act, because of itself it does very little to support indebted firms to insulate themselves from the impact of rising prices elsewhere in the economy, particularly in the months ahead. It is certainly no substitute in economic terms for the stimulation of overall aggregate demand and finding ways to reduce business outgoings in other ways.
I will be brief because there is a much, much bigger economic event happening later today, and I am certain that there are at least one or two dots and commas that have not been pre-trailed to the press that we will all be desperate to find out about. I wait in hope rather than in any great expectation, but we will see what develops. What the Chancellor should be doing is delivering the full £350 billion of coronavirus business interruption loan scheme support to the businesses that need it. That needs to happen. For those businesses that are in genuine difficulty those loans should be converted to grants. If the Chancellor does that this afternoon, he may find that the measures in the regulations before us this morning will be needed much less frequently than they might otherwise be in the months ahead. But those months are bound to be extremely difficult on a number of fronts for families, individuals and businesses.
Chris Bryant (Rhondda) (Lab)
I thought the Minister started admirably with the first half of his first sentence, when he said that it was a delight to sit under your chairmanship, Dr Huq. It then went all horribly wrong.
Chris Bryant
It did, because his next sentence was, “I beg to move that we approve this measure.” That is not what we are considering; we are only considering whether we have considered the matter.
I have a problem with secondary legislation, and it is an important point not least because we have considered so many pieces of secondary legislation in the past 18 months. I understand that there has been a pandemic but no other country in Europe, or anywhere else in the world, has used so much secondary legislation, which has gone through effectively on the nod, as we have in the UK. The problem with secondary legislation is that even if every single member of this Committee were to decide to vote against it, including the Minister, it would none the less go through, because we had “considered the matter” . It is just a fact that we would have considered the matter. I just wish that Ministers would get into their heads that we need a proper legislative process in this country. We have far too extensive use of secondary legislation and Henry VIII powers and it is time that we rolled back to legislating properly.
I specifically asked the Minister how he knows whether this is the right thing to do. Of course, the regulations say:
“Further to section 22(1) of that Act, the Secretary of State has considered the effect of these Regulations on persons likely to be affected by them.”
However, he just said that he has no idea whether the process we have been through has been useful. He thinks it might have been, but he does not know—he has no evidence to bring before us.
The regulations continue:
“Further to section 22(2) of that Act, the Secretary of State is satisfied that…the need for the provision made by these Regulations is urgent”.
The Minister has not proved that to the Committee in any shape or form. They then say that
“the provision made by these Regulations is proportionate to the purpose for which it is made”.
Again, he cannot assert that because he has no evidence on which the regulations are based.
The Minister referred to the end of covid and the Government successfully taking us through the process as if, in July, liberty day—whatever the Prime Minister called it—suddenly meant that we were all free and there was no need for any further restrictions. That we now have the highest level of infections of any country in Europe and the highest number of deaths due to covid should suggest to the Government that we are not quite through this yet. The Minister might say, “That’s one of the reasons why we still brought forward this legislation,” and that is undoubtedly why most of us would not want to oppose it, but I have important questions for him.
Why are the regulations extending the relevant period only to 31 March 2022? Is there a reason, or is it just sticking a finger in the air and saying, “Well, that feels like a sensible date”? I note that that is a few days short of the normal financial year—certainly the tax year. I wonder whether that is the right date.
In the schedule that will become the new schedule 10 to the Act, paragraph (2)(c) refers to “excluded debt”. It may be that I am being stupid and that I do not know the legislation as well as I should, but will the Minister tell us what “excluded debt” is? Finally, and again this may be because I am stupid and do not understand—I thought that might unite the Committee—I note that the territorial extent of the regulations is England, Wales and Scotland. Why is Northern Ireland not included? Of course, we have considered the regulations, but we are not approving them.
The Chair
Paul Scully
I thank hon. Members for their interesting and valuable contributions to the debate. Forgive me, Dr Huq, for not using your correct nomenclature earlier.
We have been helping companies throughout all of this, and we continue to do so. I am not sure whether I said at any time that it was the end of covid. As I have been saying for many months, this is not like a zombie film where the baddie is killed—end of covid and roll the credits. That is not the case. We will be living with it for some time, hence why the hon. Member for Rhondda is wearing a mask and why we are extending the measures before the Committee. We must ensure that, whatever happens in the next few months, we can keep businesses trading as best we can.
I did ask the Committee to approve the regulations because, yes, it will have considered them, but I want it to approve them. That is why I am begging the Committee—
Paul Scully
The hon. Gentleman says that we are not, and that is fine, but I want to be able to go back to businesses and say that we are four-square behind them in helping them through the crisis.
On what we have done for businesses, which was mentioned in a couple of contributions, we have been in close dialogue with businesses, professional groups and other organisations such as the Insolvency Service right the way through the process of these regulations about their likely impact. Indeed, on insolvencies, I am not sure of the exact figures now, but throughout the majority of the emergency they were at a 40-year low. We were clearly supporting businesses. However, that will have an impact down the line when business that would probably have been insolvent in normal times but have been held up by the suite of Government’s emergency measures start to fall by the wayside. That is the normal business cycle and landscape. None the less, there are clear signs from our feedback from businesses, business representative groups and the Insolvency Service that this measure has been useful and helpful.
The hon. Member for Feltham and Heston asked about what happened within the two-year window. When we spotted the drafting error, we laid the new SI. There were no winding-up petitions within those two days. On what happens if a repayment proposal is rejected, a court cannot force a company to accept a repayment proposal, but it will be able to refuse to issue a winding-up order where a creditor may be attempting to abuse the winding-up process, for example.
We continue to work with businesses on a number of measures. The hon. Lady asked what other support we are giving to small businesses, especially as we go through the winter. We are continuing to flex with, and listen to, businesses. Indeed, once I leave this sitting I will speak to really hard-pressed businesses from the hospitality sector, to listen to them and see how they are getting on. We regularly check in to see what businesses conditions are like. Clearly, the Budget is coming up shortly; we will see what their feedback is afterwards, and how it will affect them. We continue to ensure that we can flex our support, help and measures within that sphere, having had that feedback.
Importantly, what we are doing is extending these measures. We picked a six-month extension. To date, we have been going in three-month chunks, so that creditors in particular do not feel that we are only looking after debtors, and not looking after their interests as well. As I said, it is really important that we get a balanced, proportionate view between the two sides.
Paul Scully
As I say, it is ongoing. We will not set a particular arbitrary date for a statutory review because things can change very quickly. We have seen that right the way through the past 18 months. We do not want to be bounced, as clearly happened at points last year when we were chasing the virus, which affected the decisions made. We have learned a lot of lessons from that, but putting in an arbitrary review date is not particularly helpful when we are ensuring that we continue to speak to businesses on a day-to-day basis. On court fees, this is a modification of the usual court process for winding up, so no new fees are involved.
The hon. Member for Rhondda asked about Northern Ireland. It has laid its own regulations extending the same temporary consultancy measures as the rest of the United Kingdom.
Chris Bryant
This starts on 31 October. Today is 27 October. How is that providing sensible provisions for businesses, when there are only four days before it comes into operation?
Paul Scully
We laid the SI before then, and there is a clear direction from the Insolvency Service and other business groups on the intention of what is happening. The courts are obviously aware of the landscape. Yes, the measures are coming to us for discussion only today, but they were laid before the House and are known to business groups, with which, as I say, we continue the conversation so that they can see the constant direction. Clearly, when the measures end on 31 March 2022 it is envisaged that the insolvency regime will return to its normal operation; however, as I have been stressing, as the effects of the pandemic continue to be felt the Government will keep the requirement for the measures, as we do for all measures, under review.
Paul Scully
We have re-laid the SI so that there is no gap in provision. That is the key thing. It goes to 31 March 2022. I should say to the hon. Member for Rotherham, who spoke about debts—
Paul Scully
No, this was about the debts over and above rent. Utilities, tax and supplies are the three obvious ones that I probably should have mentioned. I think I have gone through most of the issues that were raised.