Draft Insolvency (Amendment) (EU Exit) (No. 2) Regulations 2019

Kelly Tolhurst Excerpts

Tuesday 22nd October 2019 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kelly Tolhurst)]

I beg to move,

That the Committee has considered the draft Insolvency (Amendment) (EU Exit) (No. 2) Regulations 2019.

It is a pleasure to serve under your chairmanship, Mr Pritchard. The draft regulations were laid before the House on 22 July. They supplement the Insolvency (Amendment) (EU Exit) Regulations 2019, which Parliament approved earlier this year, and will ensure that UK insolvency law still operates effectively should we leave the EU without a withdrawal agreement. The draft regulations particularly address a consequence of the change in the date of the UK’s departure from the European Union. They update the preparations that we have already made in case we leave the EU without a withdrawal agreement, and take into account new law that has come into effect since 29 March.

I emphasise that the Government and the UK insolvency sector agree that our co-operation with the EU in this area should continue. It is beneficial for both the UK and the EU, and reaching a deal with the EU before or after exit day remains a priority. That co-operation is underpinned by the rules in the EU insolvency regulation, which provides a framework for the mutual cross-border reciprocity of insolvency matters. Under those EU rules, once main insolvency proceedings have been opened in a single member state, the insolvency practitioner appointed to those proceedings can deal with assets throughout the EU. That is cost-efficient and effective; it gives us the best possible chance of rescuing insolvent businesses and returns as much money as possible to creditors.

In preparing to leave the EU, we must ensure that cross-border insolvencies can still be dealt with efficiently. If there is no withdrawal agreement, however, we cannot rely on the continuation of reciprocity arrangements, which is why the Government introduced the earlier regulations. That statutory instrument, which Parliament passed in January, aimed to prevent an imbalance whereby the UK has to recognise insolvency practices and court judgments originating in the EU with no guarantee of recognition from the EU of UK insolvencies, as the UK would no longer be a member state. The earlier regulations therefore remove the majority of the EU insolvency regulation from UK law.

The only part of the EU regulation that will be retained rather than revoked is the section dealing with jurisdiction when opening insolvency proceedings. The earlier regulations ensure that our courts are not restricted by EU rules in opening insolvency proceedings in the UK. We will keep the same categories of cross-border proceedings, which will help courts in EU member states to assess UK insolvency cases and may smooth the process of acceptance for UK cases under their domestic law. The earlier regulations also removed references to the EU rules from our law as it stood on 29 March. Since we cannot guarantee that UK orders will continue to receive automatic recognition in the EU, it is right that insolvencies commenced in the EU will not be automatically recognised in the UK.

The draft regulations, which the Government have introduced with the consent of the Scottish Government and the Scottish Parliament, are needed for two reasons. First, they extend the provisions contained in the earlier regulations to the modernised Scottish insolvency rules. The new Scottish legislation came into force after 31 March, so it was not possible to amend it with the earlier regulations. To ensure that we are consistent in our approach to cross-border insolvencies throughout the UK and provide legal certainty, the draft regulations update the new Scottish rules by removing current references to EU insolvency law.

Secondly, the draft regulations deal with one of the articles of the EU insolvency regulation. Unlike the majority of the EU regulation, which has been in force since 2017, article 25 came into force on 26 June 2019. As it was not previously expected to be in force on exit day, it was not appropriate to revoke it in the earlier insolvency regulations. Article 25 relates to the EU’s legal obligations to integrate member states’ insolvency registers, so that they can be searched centrally. If the UK is not participating in the system of mutual recognition and co-operation, it would be inappropriate to incur the costs involved in a measure associated with the rest of the framework. Therefore, our second set of EU exit regulations will ensure that article 25 is revoked on 31 October should we leave without a withdrawal agreement.

The Government’s assessment is that losing automatic recognition of UK insolvencies in the EU will result in an increased cost for insolvencies in the region of £2.7 million per year. It has not been possible to estimate the additional indirect impacts on the UK insolvency sector of the loss of co-operation, or the indirect impact on the wider economies of the UK and the EU member states. However, our two EU exit instruments in this area combine to ensure that the direct impact of leaving the EU will not be exacerbated by retaining inoperable laws, which could lead only to a lack of clarity on their application, increased costs and reduced returns to creditors in insolvency situations.

The insolvency and legal services sectors were encouraged to submit their views on the policy we adopted when the Government introduced the first set of EU exit regulations. Senior insolvency professionals and R3, the insolvency trade body, all confirm their support for this approach.

Without these regulations, if we leave the EU without a withdrawal agreement, the law in Scotland will not operate effectively and article 25 of the EU insolvency regulation will continue to be part of our law. Therefore, if the regulations are not passed today, the outcome will be uncertainty for individuals and businesses dealing with insolvencies in Scotland, and for insolvency practitioners managing those cases. Failing to prepare properly can lead only to increased costs and delays, lower returns to creditors and fewer businesses being rescued.

I therefore commend these regulations to the Committee.

--- Later in debate ---

[Kelly Tolhurst]

I thank the hon. Member for Sefton Central. Part of the joy of my work has been standing opposite him in Committee numerous times over the past 12 months. He is probably unhappy with that, but I thank him for his comments on the regulations. I will answer a couple of his points.

On consulting particular stakeholders about the regulations, there was no formal consultation, but the Insolvency Service regularly engages with and meets all stakeholders in that area, particularly R3, one of the insolvency practitioners, which fed in its comments. There has been no formal consultation, but those organisations have had many opportunities to feed in comments and speak to the Insolvency Service.

On the hon. Gentleman’s particular points on no deal, he will know that there is a Bill on the Floor of the House today, which states that we will be able to agree a free trade agreement by the end of December 2020. That agreement is the will not only of the UK, but of the EU. The Prime Minister has made a commitment with the European Union to deliver that by December 2020. I might be going off the subject slightly here, but I encourage the hon. Member for Sefton Central to support the Prime Minister and the deal today so that we can deliver mutual co-operation on insolvency rules going forward. That will absolutely prevent no deal.

I thank the hon. Member for Glasgow Central for her comments. I also thank the Scottish Government and Parliament for their co-operation and their work with us in this area. She is correct on the impact assessment. It was £2.7 million and regarded as de minimis, but the cost has developed from the costs related to establishing insolvencies in other EU states, which would have additional costs if we were not aiming to have an agreement. That is where the impact assessment has come from.

To sum up, the changes proposed by the regulations ensure clarity and legal consistency across the United Kingdom for people using the insolvency regime. The regulations also ensure that the United Kingdom is not bound by the obligations of the EU insolvency regulation when the UK will no longer benefit from that regime. I commend the regulations to the Committee.

Question put and agreed to.