Corporate Insolvency and Governance Bill completes passage through Commons

June 5, 2020

By Duncan Hedar

On Wednesday 3 June 2020, the Corporate Insolvency and Governance Bill (‘Bill’) completed all major stages[1] in the House of Commons and passed to the House of Lords for its first reading. Such condensation of the Commons stages of such an important Bill is, as many MPs pointed out, highly unusual.

Although the Bill’s passage was rapid, it was also remarkably smooth. The consensual nature of parliamentary politics in the pandemic meant that all major parties broadly supported the Bill and the Government’s commanding majority further ensured that few significant changes to the Bill were likely. The amendments ultimately made to the Bill were primarily housekeeping matters introduced by the Government and the Bill goes to the House of Lords largely as it was first tabled.

The passage of the Bill was therefore of interest primarily for the views expressed by MPs in scrutinising and debating it, and for bringing out those aspects of the Bill that are most likely to prove controversial.

MPs noted that the Bill is a chimera; part of it represents the culmination of over two years’ consultation on fundamental aspects of insolvency law, such as the new moratorium (covered previously here) and reconstruction (covered here) and part of it is a temporary response to the particular economic conditions caused by the pandemic.

This duality in the Bill, and the constrained parliamentary timetable resulting from the need to pass those measures necessitated by the pandemic quickly, is potentially problematic.  As one MP said, the longevity, stability and relative success of our insolvency system is rooted in the Companies Act 1985 and the Insolvency Act 1986.  Both Acts were the product of detailed policy formulation, extensive consultation and considerable parliamentary scrutiny.

That history contrasts unfavourably with this Bill.  As was said in the debate, industry and practitioner responses to the concepts of both the moratorium and reconstruction have been wary and consultees have been keen to stress that ‘the devil will be in the detail’.  It was expected that parliamentary scrutiny would bring that detail out.  However, as important permanent changes to UK insolvency law are introduced in this 170-page Bill, produced very shortly before the one day allocated for all Commons stages in respect of it, the necessary level of scrutiny may have been lost in the rush.

Circumspect voices amongst MPs pointed to potential flaws in the Bill.  As regards the moratorium, many focussed on the lack of clarity around the role of the monitor which will be filled by Insolvency Practitioners. Some MPs suggested that IPs acting as monitors would face inevitable conflicts of interest which should be addressed through more detailed provisions in the Bill.

More generally, some MPs felt that the Bill, in its permanent and temporary measures, represented a move away from a careful balancing of competing interests towards the prioritisation of the survival of businesses over protections for creditors and consumers.  This, it was said, can be seen in the measures which:

• prohibit the termination of supply agreements with customers in insolvency processes (discussed in detail here), because these measures may create a risk of commercial contagion radiating out from struggling companies, or may cause a move to a less efficient ‘cash-on-delivery’ economy;
• temporarily restrict the presentation of winding-up petitions in respect of companies that have been financially impacted by coronavirus (discussed in detail here) because these measures may, in practical terms, amount to a total prohibition on winding up petitions, given the evidential issues which are likely to arise for creditors;
• remove wrongful trading protections (discussed in detail here) and so roll-back important measures designed to protect the economy. MPs noted that wrongful trading legislation was introduced in response to popular disaffection with a corporate environment which allowed businesses to continue trading long after they were no longer viable, with all the attendant economic damage that caused.

MPs also expressed concern about the retrospective effect of the Bill, which it was said, was ‘dangerous’ in creating uncertainty that could undermine confidence in the economy and government in future.

On the whole, the Bill was warmly welcomed by MPs on the basis that it takes important steps to protect the country in a time of national economic crisis. However, for some it leaves open fundamental matters of detail which deserved more rigorous debate, particularly in respect of the permanent measures imposed by the Bill.  Many of those matters of detail are now likely to be clarified through the courts.

[1] Comprising the second reading, committee stage, report stage and third reading.