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Corporate Insolvency and Governance Act 2020

Volume 805: debated on Wednesday 29 July 2020


Asked by

To ask Her Majesty’s Government what assessment they have made of (1) the operation of the moratorium process set out in the Corporate Insolvency and Governance Act 2020, and (2) whether that process has led to businesses being saved from closure.

My Lords, the Government are monitoring feedback from the insolvency industry on how the new moratorium measures are helping to rescue financially distressed companies. The new provisions have been in force only for a short period, and it is too early to know whether any companies have been saved as a result of the moratorium process. Government will review the effectiveness of the measures within three years of Royal Assent.

The Minister will not be surprised to hear that I still regard it as a shame that companies with bonds—companies rather than businesses—have sought to be rescued. My research indicates that only one, or maybe two, companies have applied for the moratorium. Does the Minister accept that the monitor will now have to do a lot of unnecessary work to prove it is likely that a company will be rescued after the moratorium, and that this might hamper the monitor’s roles as both an adviser to the company and one who has to give an opinion on the company?

My noble friend is correct; my information is also that there is currently only one company taking part in the moratorium process, so it is too early to say how the measure will proceed. Clearly the role of the monitor is crucial, but as I said, we will review the effectiveness of these provisions in due course.

My Lords, on 23 June, the Minister told your Lordships’ House that he would monitor the operation of the moratorium closely once the Act came into force and that he would not hesitate to take action if it was required. It is clear from his Answer to my noble friend that action is required. Besides the very sensible proposal by my noble friend to extend the purposes of a moratorium to include the rescue of a business, rather than of a company as a legal entity, does the Minister not also agree that the exclusion of companies that have issued bonds amounting to £10 million has significantly and unnecessarily restricted uptake of the new provisions?

We are monitoring the operation closely, but as currently only one company is in the process, it really is too early to say how it will work. The exclusion relating to bonds is to protect financial stability. A moratorium could impact on the rating of those bonds and therefore the exclusion ensures the effective functioning of financial markets.

My Lords, since I last asked the Minister a question, more and more retail businesses have gone to the wall, leading to more job losses. Can he explain why only one company is going through the process, when literally hundreds of companies have gone to the wall? Has the moratorium process failed? If it has, what are we going to do to urgently address the new code? As footfall remains lower than pre-crisis levels, what other steps are the Government taking to avoid wider closures and insolvencies, and more and more job losses?

As the noble Lord observed, the measures have been in place for only a few weeks. One company has taken advantage of them, but it is an option for companies and the monitors if they think there is a possibility of the company being rescued. I can reassure noble Lords that the Government are fully committed to supporting the retail sector. In addition to the measures that have already been announced, my ministerial colleague, Minister Scully, has had regular calls with key representatives from across the sector and is working hard to address the issues it faces.

My Lords, the Act as passed does not include amendments that would have prevented banks manoeuvring into a position of primacy over small suppliers and creditors, while the Finance Act 2020 deliberately puts HMRC ahead of small suppliers and creditors. Will the Government commit to monitoring on an ongoing basis, not just in three years, any impact on small suppliers and creditors, and will they act if the evidence shows that the harm is actual and serious?

I can certainly give the noble Baroness that reassurance. These are complicated provisions and we accept that they have been in place for only a short period. We will of course continue to keep a close eye on how they are working out in practice.

My Lords, I full-throatedly support the comments of the noble Baroness, Lady Kramer, and my noble friend Lord Leigh of Hurley; I spoke to that effect during the passage of the Bill. I want to ask my noble friend the Minister about the role of the monitor, particularly around passivity and partiality. Are the Government considering passing regulations to require the monitor to submit a statement of their independence and meet a test of independence? Are they considering, in certain circumstances, enabling creditors to challenge the appointment of a monitor?

As my noble friend is aware, we debated these matters extensively only a few short weeks ago when we passed the legislation. We are keeping all aspects of the legislation under constant supervision. It is a complex Act, with lots of new provisions that we think will benefit companies, and we continue to look at how it is working in practice.

My Lords, the success of this new system will depend significantly on the courts being able to deal efficiently with new requests for a moratorium from the new court officer, the monitor. Can the Minister confirm that appropriate support and training has been made available to the court system across the country, now and for the future?

The noble Lord makes a very good point. I can certainly reassure him that the courts have taken all practical measures within the resources available to accommodate a likely increase in the workload before them. Specialist seminars have taken place to ensure that judges are up to speed with the changes and the processes that have been introduced by the Act. Resources include the numbers of, and the deployment of salary to, fee-paid judges and courtrooms, where required.

As someone who was in financial services, I wonder about awareness of the scheme. Is there not a case for putting forward a couple of arbitrary case histories on an anonymous basis—we do not have one yet, but perhaps a framework case could be drawn up initially?

I understand the point my noble friend makes, but I think that the provisions are fairly well known and understood in the insolvency profession. There is a wide circle of people who know all about them and who specialise in this area, but I am happy to consider my noble friend’s suggestion.

My Lords, in view of the fact that I have just learned that only one company has availed itself of the moratorium process, the answer to my question is now obvious. However, my question is this: has the Minister been able to make any assessment of the effect of the provision that workers be involved in moratoria by being informed? In the light of any such assessment, might it not be better to involve the workforce by consultation in advance?

I know the noble Lord feels strongly about these matters, and we discussed this during the passage of the legislation. We strengthened the monitor’s role to include a requirement in guidance that the monitor should ensure that the directors of a company have informed all employees that a moratorium has come into force. However, it is too early to see how this will work in practice.

My Lords, due to coronavirus and various related measures, there is the potential for a large backlog when the courts and tribunals fully reopen, financial assistance to companies stops, and the whole process of winding-up petitions is removed. What is the capacity of courts, tribunals and practitioners to handle that surge, and how will it be monitored, especially for how it influences choices about and during moratoriums?

The latest official statistics show that the number of corporate insolvencies decreased by half in June 2020 compared to the same month last year. However, the noble Baroness is right to say that we may well face a large increase in the months to come. We have been working with the courts and have provided the resources to make sure that they can satisfy that demand.

My Lords, my question goes to the independence of the monitor. Will my noble friend and the Government consider requiring a more stringent review by the monitor to support the rescue of a company as a going concern?

Again, we debated these matters extensively during the passage of the legislation. We are satisfied that monitors are appropriately regulated and that their independence is guaranteed. However, we will keep all these matters under review.

My Lords, the Government acted quickly in the pandemic in giving grants and loans to some small businesses. However, those businesses are now coming out of the furlough period, having to pay rent and staff, and might have exhausted their reserves. Have Her Majesty’s Government thought about creating an equity fund to help them survive?

I thank the noble Baroness for her question. We are aware of proposals for equity investment. For some companies, further debt might not be the right answer. As always, the private sector should be the first port of call, but we will keep the policy under review and will rigorously test any proposals for value for money.