I thank all noble Lords for their interesting and valuable contributions to this debate. The Government’s road map for the staged lifting of restrictions is cause for great optimism, and we can look forward to many businesses, including shops, pubs, and restaurants, being able to reopen successfully in April. But we have to recognise that these businesses and many others have suffered from the impact of the pandemic for a year now, and in many cases could take time to return to full pre-Covid financial health. The Government are determined to do whatever they can to continue to support businesses throughout this period of economic recovery. For example, many business owners and employees will have welcomed the Chancellor’s statement in the Budget that the furlough scheme will be extended to September this year.
All the same, traders and company directors will be having to assess whether full recovery of their businesses in a post-Covid economy is possible, and government financial support, along with the temporary easements in the Corporate Insolvency and Governance Act, must at some point be brought to an end. Having a power to use regulations to make temporary amendments to corporate insolvency and governance legislation, or modifications to its effect, will mean that we can continue to act quickly to meet the challenges which arise as a result of these uncertain times.
This was illustrated when the power was used to revive the suspension of personal liability for wrongful trading. This was a Corporate Insolvency and Governance Act 2020 provision which had expired at the end of September last year when trading conditions for many businesses had improved. Other temporary easements in the Act had been extended, but given the importance of wrongful trading as a protection for creditors and a deterrent to trading when insolvency proceedings are inevitable, the suspension was allowed to expire.
Sadly, as noble Lords will recall, there was a surge in infection levels in late October leading to national restrictions being reintroduced across Great Britain and businesses once again being required to close their doors. As a result, many company directors were once more faced with great uncertainty about their companies’ futures. Using the power to revive the suspension of wrongful trading meant that directors of companies which would have been viable but for the impact of the pandemic were able to make decisions as to whether they should continue to trade based solely on their knowledge and experience, rather than under the threat of becoming liable to contribute to the company’s debts themselves should insolvency proceedings then follow. This meant that unnecessary insolvencies could be avoided and is an example of how the power could be used going forward to save jobs and livelihoods.
My noble friend Lady Neville-Rolfe asked why we need the power for a further year. Although we now have a road map for the lifting of restrictions, the impact on businesses will continue after return to what we would call normality. The OBR predicts that the economy is unlikely to return to pre-Covid levels before the middle of next year, so we need to keep the power on the statute book until then. My noble friend also asked how we might intend to use the power. I am afraid I must say to her that, at the moment, we just do not know. There are no plans to use the power at present, but it is a contingency and we need to be in a position where we can meet urgent challenges quickly. If the worst happens, as the noble Lord, Lord Sikka, indicated, we may need the power as part of our strategy to deal with any increases in insolvency case numbers.
We also need to keep the power because, although the Prime Minister has now announced a road map for a gradual reopening, the impact of restrictions on businesses is likely to be felt beyond the point that we would consider to be full normality. As I have said, the OBR is expecting the economy to return to pre-Covid levels by the middle of next year, but we do not know for certain what will happen in the meantime. However, we do know that many businesses are struggling and may need protection. If we were to extend for less than a year and, as likely, a further extension was needed, we would be back here debating the same question in just a few months because of the requirement for debate before the extension can occur.
My noble friend Lady Neville-Rolfe referred to the audit reform proposals. The White Paper published this morning is not, of course, the subject of today’s debate, but I can certainly tell her that we have carefully thought through the director accountability proposals that she referred to. They would cover only the biggest companies, with turnovers into the hundreds of millions, and employing hundreds, or even thousands, of people. I think most people would think it appropriate that we ask directors of such companies to take a little more responsibility for the accounts and financial information produced by their companies. As I said, this will not apply to small business, to SMEs or to entrepreneurs, so I think I can put my noble friend’s mind at rest.
The noble Lord, Lord Sikka, asked what was being done to prepare for the approaching cliff edge of potential insolvency cases when government support
measures and temporary easements end. Official statistics published by the Insolvency Service show that case numbers are still low in comparison with the same period last year, and it seems inevitable that there will be an impact on insolvency case numbers. This is being closely considered, and extending the power for a further year will allow any temporary changes needed to be made quickly. I thank the noble Lord for reminding the Government of the importance of closely monitoring the operation of the insolvency practitioner regulation regime.
The noble Lord, Lord Lennie, asked whether the other measures introduced by the Corporate Insolvency and Governance Act would be extended. We are considering that question at the moment, and I hope that we will be in a position to make an announcement shortly. I thank the noble Lord for asking about the other temporary measures in the Act, and I can assure him that they too are under close consideration; any announcement will be made shortly.
I think I have addressed all the points raised in the debate, and I thank all noble Lords who have contributed. I commend these draft regulations to the Committee.