Corporate Insolvency and Governance Bill

Mike Wood Excerpts

2nd reading & 2nd reading: House of Commons
Wednesday 3rd June 2020 Commons Chamber

[Alok Sharma]

My hon. Friend the Under-Secretary of State will elaborate on some of the points that my hon. Friend raised. I would simply say that in July 2019, the Government issued a call for evidence on the insolvency regulatory framework, to determine whether any changes needed to be made. That included questions on whether there should be a single regulator. We expect to publish the Government response to the call for evidence later this year. Perhaps my hon. Friend the Under-Secretary will elaborate later.

Returning to the Bill, the package of measures has three elements. The first is a moratorium. That will give a company that is threatened with insolvency temporary respite from its creditors and a chance to arrange refinancing or a rescue. The moratorium will be for an initial period of 20 days, which can then be extended. There will be a time-limited easing of the eligibility criteria for a company to enter into a moratorium, to make it more accessible during the covid-19 response period.

[Mike Wood (Dudley South) (Con)]

The temporary measures that my right hon. Friend has included in the Bill will provide great respite for many businesses, particularly in the hospitality sector, where businesses have been unable to trade throughout this outbreak but rents have remained very high; the measures will protect them from aggressive landlords. Those pressures will continue well past the end of June, so will he consider extending the protection for tenants from winding-up petitions?

[Alok Sharma]

Of course, that is part of the measures that we will bring in. I recognise why my hon. Friend wants to ensure that tenants have protection, and that is why we will introduce the temporary measures around this issue, but of course we also need to think about landlords. I will address that point as I go through my speech.

Returning to the moratorium, the time-limited easing of the eligibility criteria for a company to enter a moratorium, to make that more accessible during the covid-19 response period, will be in place for a month after Royal Assent. Of course, that can be extended if it is deemed necessary.

The second part of the new permanent restructuring measures will allow companies in financial difficulty to propose a rescue plan to restructure complex debt arrangements, and to bind creditors to it, as long as certain thresholds are met. That means that viable companies struggling with debt obligations will be able to restructure under the new procedure.

There are, however, significant safeguards and protections for creditors, which is right and proper. The plan must be sanctioned by the court and, indeed, any dissenting creditor class bound to a plan must not be made worse off than it would have been in the next most likely outcome. I know that a number of colleagues, both in the House and outside, have raised this issue. That is why we have ensured that this measure is in place.

The third part of the restructuring package will prohibit termination clauses. That will prevent suppliers from terminating contracts or raising prices just because a company has entered an insolvency procedure or a moratorium. Of course, we recognise that requiring companies to supply under those circumstances may cause them financial difficulties, so we have built in a number of protections for suppliers too.

If continuing supply would cause a supplier hardship, it can apply to the court for permission to terminate the contract. In addition, if goods or services supplied after the insolvency begins are not paid for, the supplier can terminate the contract. Further, the Government will temporarily exempt small suppliers from this requirement altogether during the covid-19 crisis, recognising the particular challenges that those firms face.