Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021

Lord Lennie Excerpts

Tuesday 9th November 2021 Grand Committee

[Lord Sikka (Lab)]

It has been? You may be right; I probably missed it.

Why are the same arbitrations terms not available to individuals? Why are they restricted to commercial landlords and commercial property? The increase in the threshold—from £750 to £10,000—for presenting a winding-up petition may give temporary reprieve to some small businesses, but the Government have missed an opportunity to offer permanent help to small businesses in matters of bankruptcy. This would have required a change in the order in which the creditors of an insolvent business are paid. Currently, secured creditors, which include banks, private equity, hedge funds and wealthy individuals, walk off with most of the proceeds from the sale of the assets of a bankrupt business, leaving little, if anything, for unsecured creditors, comprising employee pension schemes and supply-chain creditors, including many small businesses.

The insolvency law is forcing employees to forgo some of their pension rights. It also strangles many small businesses, because, in their capacity as unsecured creditors, they will receive next to nothing from the bankruptcy of a large customer. So, unlike financial conglomerates, they are forced to bear a highly disproportionate amount of risk arising from the bankruptcy of their clients. I cannot think of any moral or economic reason that justifies financial conglomerates being able to walk away with most of the assets of a bankrupt business, leaving small businesses and pension schemes with little or nothing.

It would be helpful to hear what moral and economic justification the Minister can offer; it is actually strangling SMEs and damaging employee pension interests. Could the Minister indicate whether, perhaps before the end of this Parliament, the Government have any plan to introduce legislation that will facilitate the equitable sharing of bankruptcy risks among all creditors? As I said, there is no economic or moral reason why secured creditors have to be prioritised. That law goes back to the 18th century, and here we are in the 21st century still not having changed it. Is it not time that we did?

[Lord Lennie (Lab)]

My Lords, as the Minister has said, the statutory instrument introduces new temporary tapering measures that restrict the use of winding-up petitions. From 1 October, this instrument introduced a tapering effect, we are told by government, to protect companies from aggressive creditor enforcement as the economy opens up. The new temporary measures will be in place until 31 March 2022, but, ultimately, it is an extension of some support and a withdrawal of other support in the way it has been tapered.

We believe that it is right to maintain restrictions on serving winding-up petitions under Schedule 10 to the Corporate Insolvency and Governance Act 2020. It is vital that businesses that have sustained so much pressure during the last 18 months be supported right through to the end of the pandemic. This pressure was clearly demonstrated by the recently published annual report from the Insolvency Service, which found that although some measures had mitigated the impact of the pandemic on businesses, the number of people who have accessed the Redundancy Payments Service was up around 20% on normal levels.