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

Debated on Monday 6 September 2021

The Committee consisted of the following Members:

Chair: Sir Gary Streeter

† Anderson, Lee (Ashfield) (Con)

† Butler, Rob (Aylesbury) (Con)

Creasy, Stella (Walthamstow) (Lab/Co-op)

† Fletcher, Colleen (Coventry North East) (Lab)

† Fletcher, Mark (Bolsover) (Con)

† Greenwood, Margaret (Wirral West) (Lab)

† Henry, Darren (Broxtowe) (Con)

Johnson, Dame Diana (Kingston upon Hull North) (Lab)

† Longhi, Marco (Dudley North) (Con)

† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)

† Mullan, Dr Kieran (Crewe and Nantwich) (Con)

† Scully, Paul (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)

† Slaughter, Andy (Hammersmith) (Lab)

† Stevenson, Jane (Wolverhampton North East) (Con)

Thomson, Richard (Gordon) (SNP)

† Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)

† Wild, James (North West Norfolk) (Con)

Liam Laurence Smyth, Committee Clerk

† attended the Committee

First Delegated Legislation Committee

Monday 6 September 2021

[Sir Gary Streeter in the Chair]

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

Before we begin, may I encourage Members to wear masks when they are not speaking, in line with current Government guidance and that of the House of Commons Commission? Please also give each other and members of staff space when seated and when entering and leaving the room. Members should send their speaking notes by email to hansardnotes@ parliament.uk. Similarly, any officials in the Gallery should communicate electronically with Ministers—not that they will need your help, of course.

I beg to move,

That the Committee has considered the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021 (S.I. 2021, No. 718).

The regulations were laid before the House on 21 June 2021. Sir Gary, it is a pleasure to serve under your chairmanship to tackle this snappily titled SI, which will probably take me longer to read than to cover.

The past 18 months have been a huge challenge for all of us. We have started to lift the restrictions, and I am sure that everyone here shares my optimism that the early signs of a strong recovery signal a return to normality, but clearly many businesses are not out of the woods just yet. We have listened to the concerns of the business community and have been swift to act, providing affected businesses with the help and support that they need to survive. Many businesses have benefited from the economic package of support totalling £352 billion through furlough, the self-employment income support scheme, and support for businesses through grants, loans, and business rate and VAT relief. However, although we have now gone through the road map, many businesses continue to feel the longer-term effects of the pandemic.

The instrument before us has continued to help companies by extending one measure first introduced by the Corporate Insolvency and Governance Act 2020: specifically, the temporary suspension of issuing statutory demands and a restriction on company winding-up petitions until 30 September 2021. This measure has been extended several times by regulation, most recently from the end of March to 30 June. This instrument seeks to extend it one further time, providing confidence to businesses that they will be able to continue to trade as the economy gets back to normal. Since its introduction in June last year, the measure has protected many viable companies from aggressive creditor enforcement during really difficult trading times, and the temporary restriction on company winding-up petitions has meant that anyone who wants to wind up a company that has not paid its debts must satisfy a court that those debts are not covid-19 related.

As of today’s date, all businesses are able to reopen and trade without restriction. This extension aims to give the many companies that would be viable, were it not for the pandemic, much-needed time to get back on their feet as the economy begins to return to normal. The measure is intended to help companies that may be subject to aggressive creditor enforcement, but the Government have always been clear that it is not to be seen as a payment holiday. Where companies can pay their debts, they should do so. The added protection that this measure gives also allows those companies with unavoidable accrued arrears caused by the pandemic time to take advice from restructuring professionals and to negotiate and reach agreements with their creditors wherever possible, without facing the threat of being compulsorily liquidated while they do so.

I know that many businesses and their representatives will welcome the continued support that these regulations will give them. I also recognise that this measure will mean a further period of uncertainty for creditors, during which their rights to enforce recovery of debts will be temporarily restricted. However, as I have said, the measure is intended to help those in financial difficulty as a result of the pandemic, and should not be used as an excuse to avoid payment. Where a company can pay its debts, it should do so. We do not take this action lightly; we are aware of its impact on creditors, and we are continuing to monitor the situation carefully and consult with stakeholders and the business community to determine what further action may be necessary when these regulations expire at the end of September. I commend the regulations to the Committee.

It is a pleasure to serve under your chairship, Sir Gary. Labour welcomes this extension to schedule 10 of the Corporate Insolvency and Governance Act 2020, having worked previously both privately and publicly to extend the time period for the provisions, which were also supported by my predecessor, my hon. Friend the Member for Manchester Central (Lucy Powell). I agree with the Minister that those businesses that can pay their debts should do so, but this was an important step to support and protect otherwise viable businesses from, as he alluded to, aggressive creditors seeking to use statutory demands and winding-up petitions to recover debt and trigger insolvency procedures.

Although we are starting slowly to emerge from the pandemic, businesses up and down the country still face significant challenges. The supply chain crisis is now seriously disrupting the flow of goods to and from businesses, with covid being one of the several underlying causes in the UK and abroad. We have called for measures to tackle that urgently, with a new five-point plan that Members may have seen over the weekend, step 1 of which is a dedicated Minister to lead and co-ordinate efforts across Departments to tackle those issues and support business recovery. Staff shortages have forced businesses either to reduce the amount that they are open or, indeed, to close. In July, around £6 billion-worth of debt accrued during the crisis was owed to commercial landlords.

It is right that businesses facing financial difficulties continue to receive support. Although we may have, thankfully—we hope—passed the worst of the pandemic, our economic recovery is still subject to uncertainties and challenges, particularly in the months and years ahead. There are still huge hurdles for businesses, and the recovery is not equal across all sectors. We must not remove our support and let viable businesses fall at the last moment. Many small businesses, particularly in aerospace, aviation, steel, hospitality, travel, tourism, culture and retail—many sectors that may have started in recent weeks to see demand increase—will still be experiencing particular issues and, in many cases, a cash crisis.

That brings me to the key issue with the extension, which obviously we support. It is similar to the issue raised by my predecessor. How do we know that 30 September is the right time to end the support? What assessment has been done in choosing that as the right time? What evidence do the Government have that otherwise strong businesses will not continue to face financial difficulties after September, especially given the ongoing covid-related staff shortages and the supply chain problems that I have highlighted? The Government must not let previous covid support end up being for nothing by pulling away the provisions, sometimes too early, causing businesses to suffer at the last moment. We want to understand what the evidence is for the end of September as the new, extended, date.

A significant amount of the debt that businesses face comes from owed rent. Despite the commercial rent moratorium, landlords could still attempt to recoup rent from businesses by serving statutory demands and, subsequently, winding-up petitions. Schedule 10 of the 2020 Act, as the Minister alluded to, rendered statutory demands served on companies during the relevant period effectively void. Once the provisions are brought to an end, how will the Government support businesses that may face rent-based statutory demands and winding-up petitions?

The rent moratorium may be in place until March 2022, but how does that sit alongside the ending of the protections in schedule 10? It seems that from 1 October a landlord will not be able to evict a commercial tenant but will be able to seek to have the tenant liquidated through a winding-up petition. Do the Government recognise that there is a paradox in that? They are legislating for businesses to be protected from eviction but not from rent-induced liquidation. It would be very helpful to understand how some of those policies fit together, or indeed whether there is a contradiction.

People up and down the country might be enjoying the lifting of restrictions, with the caution that is certainly being encouraged still, but we must not pretend that businesses are no longer struggling or no longer need support. There will be a particularly difficult hit as furlough comes to an end, giving businesses a double whammy of reduced support and protection at the same time. Labour therefore supports the extension of these important provisions, but we seek assurances and detail from the Government on why the extension is to the end of September, and what the Minister assesses the situation for businesses will be from October onwards.

May I also ask what more the Government are doing, as the Minister alluded to, in terms of advice and support from insolvency professionals? What are the Government doing to ensure that businesses can seek and get good early advice on addressing debt repayment, so that insolvencies that can be avoided in the next year, are avoided? We must not pull that support too early and let viable businesses fall at the last hurdle, with the pathway to recovery still uneven for many different businesses and sectors.

I appreciate the hon. Lady’s support, her party’s support and the support of her predecessor, the hon. Member for Manchester Central (Lucy Powell), who was patient in returning to this Committee Room and others to talk about these statutory instruments and regulations. I beg the hon. Lady’s patience to do likewise over the next few weeks.

We do not want to keep any measures in place for a day longer than we need to, so that we can return to the free market. However, I talked about the £352 billion-worth of support that the Government have given to businesses. That gives us 352 billion reasons why we need to shape the next bit, to ensure that we can avoid the cliff edges that the hon. Lady talked about and viable businesses can start to work through their recovery, so that we do not lose the implicit gains that we have made by being able to support jobs, businesses and livelihoods.

We know that these measures have had a significant impact on the normal work of insolvency legislation and the rights of creditors, which is why it is important that we get the balance right between allowing recovery and allowing the market and creditors to return to normal. We will keep the measures under review and continue to work with colleagues across the House to keep them abreast of our thinking and our stakeholder reviews, as they develop.

Many landlords are demonstrating best practice by working closely with tenants to find solutions that work for both parties, and we are grateful to see those discussions taking place. As the hon. Lady said, the Government have extended the commercial rents moratorium to March 2022. We will introduce legislation to support the orderly resolution of commercial rent arrears for tenants that were affected by restrictions during the pandemic. That legislation will ring-fence the rent debt accrued and set out a process of finding arbitration between landlords and tenants.

We recognised the potential for cliff-edge scenarios, including the role of the accumulation of unpaid debts becoming due when restrictions and Government fiscal support expire. Work is ongoing to develop solutions to enable a viable exit from these measures. We hope to make an announcement soon.

The points raised today have highlighted the importance of the measures in the legislation. This regulation will provide much-needed continuing support for businesses to concentrate their best efforts on continuing to trade and build on the foundations of our economic recovery un-impinged by that threat to their viability.

I sincerely hope that companies and their creditors will come together in good faith to maintain their future trading relationships and secure the benefits to both themselves and the economy as a whole. I thank hon. Members for their valuable contributions to the debate and I commend the regulations to the Committee.

Question put and agreed to.

Committee rose.