Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021 Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Seema Malhotra
Main Page: Seema Malhotra (Labour (Co-op) - Feltham and Heston)Department Debates - View all Seema Malhotra's debates with the Department for Business, Energy and Industrial Strategy
Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021
Seema Malhotra Excerpts(3 years ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Paul Scully
I do not want to pre-empt deliberations on this, but if a business has been closed and is unable to trade, that would be more likely to be eligible. However, the commercial debt that was within the period that we have packaged and kept aside—effectively, from the beginning to the end of lockdown—has been bundled up and will be dealt with in the next set of legislation on mandatory arbitration, which we hope we will not need.
We hope that between now and completion of that legislation a lot of companies will be able to have those conversations between tenants and landlords, knowing that otherwise they will be forced into mandatory arbitration. We want people to be able to settle their own debts and have their own discussions. The rent debts that were accrued during lockdown are ring-fenced for the purpose of that arbitration scheme, but all commercial rents that are owed after 19 July 2021 should be paid in full, as and when they fall due.
In conclusion, these new targeted criteria demonstrate that the Government have listened to the concerns raised about the potential for a cliff edge for insolvencies, once the Government’s regulatory and fiscal support has ended. The new targeted criteria represent a balance between the rights of creditors and the further protections needed by the businesses most affected by the trading restrictions placed on them. The new criteria reinforce the Government’s clear message that discussion is absolutely crucial between creditors and the debtors, who should continue to negotiate where possible. If successful, those negotiations can result in both creditors and debtors achieving the same long-term goals of continued trading, repayment of debts and a return to profits, in turn bringing benefits to themselves, their employees and the wider economy. I commend the regulations to the Committee.
Question proposed,
That the Committee has considered the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Amendment of Schedule 10) (No. 2) Regulations 2021 (S.I. 2021, No. 1091).—(Paul Scully.)
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Dr Huq. May I thank the Minister for his opening remarks? I would be grateful to him if he could respond to some of my questions, either in response today or in writing. I want to know which business organisations the Minister spoke to before deciding to move forward with the tapering as it is and as proposed by the Government. How will he keep the measure under review? It is both an extension of some support and a withdrawal of other support in the way that it has been tapered, and I thank my hon. Friend the Member for Rhondda for the point he made in relation to that.
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 pressure during the last 18 months are supported right through to the end of the pandemic. We acknowledge and welcome the raised limit, and at least there is considerable protection for small businesses with debts below £10,000. That is important and is in line with the measures that we have called for since June, when other support was withdrawn, to ensure that there are effective ways to deal with debt through the period of recovery, so that we do not see the loss of viable businesses that are allowed to fail because of the impact of covid-19.
Let us face it: covid-19 is not over yet, and there is still uncertainty about what might happen going forward and whether there will be further restrictions. It is important that the Government make it clear to Parliament how there will be flexibility in relation to business support that will be in line with potentially changing health measures. In this context, the pressures facing businesses this winter must be taken into account as the Government keep the measure under review.
The challenges are numerous: rising energy prices, the Government’s supply chain crisis, price inflation and consumer confidence declining to its lowest level since April, compounded further by the Government’s cruel decision to cut universal credit for 6 million families. Why does that matter? Let me take my constituency as an example, with 18,000 households affected and £18 million coming out of the local economy—£18 million that would be spent largely in local shops. There is a relationship between the choices being made on cuts to universal credit and the support that there will be for small businesses as household income reduces, as people are able to spend less on looking after their families, which they do largely in community businesses.
This is a time when businesses should be experiencing their golden quarter—the quarter leading up to Christmas, when they can make the majority of their profits for the year in order to address the debt that they may have accrued during the periods before—but many businesses will still be fighting for their survival and having to respond to one crisis after another. I am sure that the Minister has received representations from affected businesses. I can state one example of a business that told me it had to refund £8,000-worth of customer purchases a month ago because the goods were not going to arrive due to the supply chain crisis.
This is affecting businesses up and down the country. The last two quarters have also seen more than 100,000 business deaths in each quarter—more than in any other subsequent quarters in the recent past. Without a more robust response, quarter 4 of 2021 and quarter 1 of next year will be worse. Against this backdrop, it is no wonder that business groups, including the Federation of Small Businesses, have warned of falling business confidence. The cash liquidity crisis, which is also facing various sectors of the economy, from aviation to retail and leisure, will continue well into 2022. It is important for us not to just assume and want to believe that things were suddenly magically better from July onwards, because a lot of the uncertainty remains.
That brings us to the extension of the restrictions, even with the tapering, which we do support, as we did last month with the extensions that we debated then. First, with regard to the two-day gap that was created by the initial version of this instrument, how many businesses were issued with winding-up orders on 29 and 30 September? Does the Minister have those figures? Will those businesses now benefit from the protections that they should have had?
Last time, we also noted our concern that the Government were legislating for businesses to be protected from eviction but not rent-induced liquidation. The Minister then spoke of legislation being introduced to support the resolution of commercial rent arrears for tenants that were affected by the restrictions during the pandemic. What is the status of that? Rent debt will remain an anvil around the necks of many businesses, particularly those in the hospitality and retail sectors, which have been impacted—sometimes most—by the pandemic.
That can also be the case in areas of tourism that were very significantly impacted. Some of that picked up this summer, but aviation has seen a very stuttering recovery. In relation to the aviation supply chain across the country, which includes hundreds of thousands of businesses, the Minister will know that there is still huge uncertainty as international travel and even domestic travel are still recovering. It is estimated that the hospitality sector alone is facing billions of pounds of rent debt.
Therefore, when it comes to lifting the measure of support, along with the business rate and VAT reductions and the eviction restrictions, much of which will happen in March, this could well lead to a real risk of a cliff-edge scenario for businesses, particularly those that have been hit hardest by the pandemic and are not in those sectors that are recovering more quickly. The tail of the recovery is set to continue well into next year and even the year after, so what assessment is being made of what the additional support might be and how that can be tailored to deal with the slower recovery of particular sectors?
Will the Minister also provide an update on the arbitration process that, I think, has been brought forward? On the detail of that in relation to rent arrears, I would be grateful for an update.
I will express just a few concerns about today’s SI. The legislation note describes the process, which the Minister outlined, of notice needing to be given, 21 days of consultation, and allowing a response from the debtor to then be taken into account. What happens if, unreasonably, the creditor does not wish to accept the proposal? Would that then be for the courts to decide? Could any court fees then be payable? If the debtor does not win the case against them, will they then be having to pay court fees as well? Perhaps the Minister can provide clarification, because I am not sure of the detail of that.
Could the Minister clarify one point? If the 21 days begins just a few days before the measures are due to end in March of next year, what does that mean for any of the disagreements going through between a creditor and a debtor? Will the 21 days that might start before the end of these provisions continue with those rights secured?
People may be concerned about their business, which might otherwise be viable but has been hit by covid and the continuing uncertainty over recovery. What are the Government doing to ensure that those who are concerned about the ending of the temporary insolvency measures seek effective early advice? I agree with R3 that businesses that seek advice early often have the best options open to them and the best advice to make decisions about their next steps. That often results in a more favourable outcome than if those businesses had waited and let problems spiral. What are the Government doing to make businesses aware of such advice? That may mean the involvement of grassroots business organisations.
If the Government are forced to introduce new measures this winter as a result of a health crisis that restricts business operations, will they review those measures and amend them as required? At a time when businesses need us most, the House should focus on how we support businesses not just to survive but to recover and thrive. They will be looking to us to make sure that support is not removed from businesses prematurely. That would have a catastrophic impact on businesses, high streets and communities across the country.
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.
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.
Seema Malhotra
May I remind the Minister about the question on court fees? It would be helpful if he could come back to me on that. Also, no statutory review clause was introduced as part of the instrument. The explanatory memorandum says that
“the Government will continue to monitor the need for these measures”
and that
“the provisions in this instrument will automatically expire”,
I think on 25 March. Would it not be helpful to have a statutory review clause? Otherwise, it feels like we get bounced at the end, and sometimes after the event. It would be helpful to have some time to consider the changes made in advance.
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.
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.
Seema Malhotra
May I just clarify the dates? I think some things have been 25 March, but this says 31 March. Are today’s measures retrospective, so from 1 October, and will they expire on 31 March?
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—