Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

Lord Bassam of Brighton Excerpts

Monday 6th September 2021 Grand Committee

[Lord Bassam of Brighton (Lab)]

My Lords, we are back again debating measures to extend the restrictions on the use of statutory demands and winding-up petitions. I think this is the third time we have debated them, and every time we welcome, as we would from our Benches, the Government extending the safety net for businesses in distress because of the pandemic.

Just as we supported the emergency legislation last year, we welcome any measures to support the businesses that closed to keep us safe. As the Minister knows well by now, we argued then that the protections in the Act should be extended over a long period. As the Government extend them again, we reiterate the point, as we have before, that these short extensions cause real uncertainty and worry for businesses in the run-up to each expiry date, concerned as those businesses are with the cliff edge.

As the economy opens and restrictions end, it is right that these measures are kept under review, but we must also remember how many people are still affected by insolvency. The Government’s recent statistics, from July 2021, showed that there were 1,094 registered insolvencies. This was 13% higher than the number registered in the same month in 2020. Does the Minister expect this yearly increase to continue for the rest of 2021? Before he gets into the stream of consciousness response which the noble Lord, Lord Hodgson, so eagerly anticipated, perhaps he could answer a few other questions as well.

Will this be the last extension of these measures, or will we be back in a couple of weeks, or a month or so, since the current extension is only to the end of September? What has changed since the last SI is that some support was not extended beyond the end of June. This includes the small supplier exemptions from the termination clause provisions and the suspension of viability for wrongful trading provisions. The Government have said that these measures were allowed to lapse to enable a gradual return of the insolvency framework to its normal operation. Can the Minister explain how this decision was made? What evidence was it based on? What impact has it had on businesses since June?

As we return fresh from recess, can we hear from the Minister about any new plans the Government have for wider reform of our insolvency laws, including providing some greater protection and support for key industries and their key workers? As Covid support continues to be pulled away, we must ensure that we do not see a whole wave of insolvencies during the latter end of this year, provoking rises in unemployment and making businesses less certain of the environment in which they will work. We need to get the right support to thrive in the post-pandemic period, whenever we feel that comes.

Having listened to noble Lords around the Committee, I think we are all in need of some reassurance. Some colleagues here want to see market forces let rip, but I do not think that doing so is necessarily the best option here, although of course we all want to return to normal. I look forward to the noble Lord’s reassurances and some answers to those key questions, as well as to those raised by the noble Lord, Lord Hodgson of Astley Abbotts.

[Lord Callanan (Con)]

First, I thank all noble Lords for their interesting and, as always, valuable contributions to this debate.

It is worth reiterating that, since the emergence of Covid-19, businesses have received billions in loans, tax deferrals, business rate relief and grants to support them and, vitally, to help them to preserve jobs. The Government’s road map for the staged lifting of restrictions has in my view been a success in protecting the UK from the spread of Covid-19 while the vaccine programme was rolled out, and we can all begin slowly to return to normality.

However, we must recognise that many businesses and others have suffered from the impact of the pandemic for over a year now, and in many cases it will take time to return to full pre-Covid financial health. The Government will continue to do what it takes to support businesses through this period of economic recovery.

The points raised have highlighted the importance of the measure being extended by these regulations and the necessity of extending it once more so that businesses can continue to benefit from it. These regulations will provide the much-needed continued support for businesses to concentrate their best efforts on continuing to trade, preserve jobs and build the foundations for our economic recovery. I sincerely hope that companies and their creditors will come together in good faith to maintain their future trading relationships and secure the benefits for both themselves and the economy as a whole.

I will answer some of the points that were quite fairly put to me in the debate. The noble Lord, Lord Sikka, and my noble friend Lord Leigh asked a very pertinent and relevant question about what will happen when these measures come to an end in a little over three weeks’ time. The Government recognise that there is potential for what I think both noble Lords referred to as a cliff-edge scenario involving the accumulation of unpaid debts becoming due when these restrictions and government fiscal support expire. I can tell noble Lords that work is ongoing with businesses and key stakeholders to develop solutions to enable a viable exit from these measures. All options are being considered, and I hope to make an announcement on this very shortly.

The noble Lord, Lord Sikka, asked what the Government are doing to support creditors who are unable to recover their debts and who are putting their own businesses at risk. To reiterate, this is a temporary measure that is intended to help struggling businesses during the continuation of the pandemic. It does not, as I said initially, permanently prevent the possibility of a creditor serving a statutory demand and/or presenting a winding-up petition. When the legislation expires, a creditor will be able to pursue their debt. We expect this to encourage businesses to continue, wherever possible, to meet their ongoing liabilities as far as they are able to do so.

There is a range of other legal options available to creditors seeking to recover debts which are unaffected by the changes being made here. If is, for example, possible to bring a civil claim to recover a debt. Also, where a company’s inability to pay is not related to Covid-19, it will still be possible to present a petition for winding it up, notwithstanding the points correctly raised by my noble friend Lord Hodgson. There is evidence to suggest that winding-up petitions are still being presented in appropriate cases.