Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 — House of Lords, 2020-12-17
Topic: Domestic Commerce
Martin Callanan (Conservative, Centre-right): I thank the noble Lord, Lord Stevenson, and the noble Baronesses, Lady Bowles and Lady Altmann, for their valuable contributions. They are all veterans of the previous Act’s debates, and the points they raised very much reflect some of the concerns raised during those debates. They have also highlighted the importance of the measures and the necessity of doing all we can to extend them so that support for businesses can continue. Businesses have continued to face an exceptionally challenging time, with many of them unable to trade at full capacity due to the need to protect the population. These regulations provide the much-needed support for businesses to build on the foundations for economic recovery Picking up on the points raised by all three noble Lords, who rightly reflected the concerns of creditors, it is worth pointing out that the suspension of wrongful trading does not give a free pass to directors allowing them to act irresponsibly. This was a point made by the noble Baroness, Lady Bowles. Other vital protections for creditors remain in place to protect them when a company is in an insolvent position. These are the director duties set out in the Companies Act; the provisions of fraudulent trading; the provisions on misfeasance actions under the Insolvency Act; and, ultimately, disqualifications from acting as a company director The noble Baronesses, Lady Altmann and Lady Bowles, both raised the matter raised by the JCSI, and we are of course grateful for their input and for bringing it to the attention of the House. The suspension works by telling any court considering a wrongful trading action that it is to assume that a director is not to be held responsible for any worsening of the financial position of the company in the relevant period—and this is crucial—from 26 November to 30 April. This was the position we used in the Act itself. The purpose of the suspension is to prevent directors from otherwise putting viable companies into insolvency proceedings just because of the risk to them of personal liability. As I said in the introduction, I reassure all three noble Lords that this suspension will be kept under review while the restrictions remain in place, and we will consider using the power to end the suspension early if trading conditions change such that the suspension is no longer needed or no longer proportionate The noble Baroness, Lady Bowles, also raised the subject of further extensions, but I can reassure her the Government will extend only for as long as is necessary. The covering Act only allows for that, but we will of course keep this matter under close consideration. The suspension is related solely to the relevant period that I referred to The noble Baroness, Lady Bowles, and the noble Lord, Lord Stevenson, rightly raised the issue of what the noble Lord, Lord Stevenson, called the "lacuna" period and asked why the suspension of wrongful trading was not extended in the previous regulations laid on 24 September. At the time, even though social distancing and restrictions on social gatherings remained, directors had had seven months to access the package of help put forward by the Government, and some trading had returned to more normal levels. It was important at that time that protection for directors was reinstated. The suspension did not, in and of itself, remove any director’s responsibility continually to assess the company’s situation. We believe that things have changed since then; the uncertainty facing businesses has worsened again, and it is now right that the suspension should return, allowing directors every opportunity to help their companies survive the pandemic. This is matter of fine judgment, but we believe that we have the balance right The noble Lord, Lord Stevenson, also raised the issue of AGMs. We will be mandating that all AGMs can be held virtually in future, but we do recognise the value of holding physical AGMs. It is not appropriate to mandate that all meetings be held electronically. It is for companies to work with their members to establish their preferred way of working and holding meetings in future, to secure their consent and to make the requisite changes to their articles of association After all of those answers, I think I have addressed all the concerns raised, but let me reiterate: careful consideration has been given to extending these temporary measures, and the Government will, as I said, monitor the situation very closely before making any further decisions on how best to support businesses and representatives as the UK returns to normal. With that, I commend these regulations to the House.