The Corporate Insolvency and Governance Bill is currently being fast-tracked through Parliament, but is the Government making a mistake in seeking to combine a short-term breathing space for businesses during the current Covid-19 crisis with introducing the greatest changes we have seen to UK insolvency laws for decades?

The Government appears to be aiming for the Bill to become law by the beginning of July, but recent reports by two Parliamentary Committees involved in scrutinising the Bill suggest that its passage might not be as smooth as the Government had hoped.  The House of Lords Delegated Powers and Regulatory Reform Select Committee expressed concerns last week about various details of the Bill and the extent to which ministers will be able to introduce regulations to amend areas of insolvency law without Parliamentary scrutiny.  These concerns appear to be shared by the Constitution Committee, whose report last week reminded the Government that: 

"While temporary measures to respond to the COVID-19 pandemic may meet the threshold of urgency and exceptional circumstances to warrant fast-tracking, long-planned and permanent changes to the law do not. It is inappropriate for such permanent changes to be fast-tracked through Parliament and so subject to less debate and scrutiny."

Landlords and tenants have been focusing much of their attention on the temporary measures within the Bill which are designed to support businesses through the current pandemic - including restrictions on winding-up petitions and suspending parts of insolvency law to support directors in trading through the emergency without the threat of personal liability.  The Bill allows these measures to be subsequently extended or curtailed depending upon how long they are required.

However, the Bill's permanent measures are far-reaching and include the introduction of a new type of moratorium for companies in financial distress.  This new moratorium is designed to allow businesses the opportunity to explore rescue and restructuring options free from creditor action and with the existing board remaining in control.  But does it achieve an appropriate balance between struggling companies and their creditors or do the increased protections go too far?  

Given the potential significance of the proposed changes, the Parliamentary Committees are entirely right to highlight the importance of careful scrutiny of the proposed legislation. Unfortunately, the detailed Bill (which is 233 pages long) received only a fortnight of review in the House of Commons and is now also speeding through the House of Lords.  The next debate on the draft Bill is due on 16 June, to be followed by a further debate on 23 June before it returns to the House of Commons.  Will it be a case of legislate in haste, repent at leisure?  

{We acknowledge that this is an extraordinary Bill for extraordinary times. Even so, we have found many aspects of the Bill deeply troubling, not only because of the extent to which powers are permanently conferred on ministers but also because of the level of parliamentary control over their exercise. There are provisions enabling ministers to amend or modify the effect of whole areas of insolvency law.... Our concerns are all the greater because of the speed at which Parliament is being asked to consider the Bill.

Originally published June 15, 2020.

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