HANSARD
Insolvency Act 1986 Part A1 Moratorium (Eligibility of Private Registered Providers) Regulations 2020
- Motion to Approve
- 2:45 pm
- Moved by
- That the Regulations laid before the House on 29 June be approved.
- My Lords, the purpose of these regulations is to disapply the moratorium powers under the Corporate Insolvency and Governance Act 2020 for private registered providers. A separate housing moratorium of 28 days already exists to support them should they get into financial difficulty.The Corporate Insolvency and Governance Act 2020 introduced a range of measures, both permanent and temporary, to assist businesses. The Act gives companies the flexibility and breathing space they need to continue trading during this difficult time. The regulations being considered today relate to the moratorium provisions contained in that Act. The moratorium measure gives struggling companies a breathing space in which to explore their rescue and restructuring options, free from creditor action. During the moratorium, no legal action can be taken against a company without leave of the court. The measure ensures that companies that are struggling are given the opportunity to survive.Private registered providers of social housing already have special arrangements for dealing with financial difficulties. These arrangements are set out in the Housing and Regeneration Act 2008 and the Housing and Planning Act 2016. This regime already includes a 28-day moratorium to allow a provider in difficulty, working with the Regulator of Social Housing, to resolve its problems. The arrangements we already have in place, combined with the economic regulation of the sector by the Regulator of Social Housing, make this new moratorium unnecessary.Under powers within the Corporate Insolvency and Governance Act 2020, these regulations disapply the moratorium powers within that Act to private registered providers. This averts the potential of having two routes that a private registered provider in financial difficulty could follow. This could lead to having two moratoria operating alongside each other, which could be conflicting. This could undermine the ability of the Regulator of Social Housing to support a private registered provider facing financial difficulty, thereby limiting its ability to protect tenants. We seek to avoid this situation.
- 2:49 pm
- My Lords, I support this tidying-up exercise to remove a clash of moratorium provisions for private housing providers between, on the one hand, the housing Acts of 2008 and 2016 and, on the other, the new provisions in the Insolvency Act 1986 as amended by the Corporate Insolvency and Governance Act 2020.I am unclear as to whether the slight messiness that these regulations aim to clear up was anticipated during the legislative passage of the recent insolvency Act, but given the fact that only 322 of the approximately 4 million companies in the UK are privately registered providers of housing, there could arise legal, financial and policy confusion from having two separate moratorium regimes applying to this small but important area of economic activity. Also, given that the new provisions do not offer greater protection for providers faced with Covid-related financial difficulties than the existing provisions, the regulations seem, at least to me, to be sensible and proportionate.I will not detain the House for long because colleagues such as the noble Baroness, Lady Bowles, has much greater practical experience and expertise in this area than I do, but this is a subject that I have been interested in for some years and I have a couple of brief comments and questions to offer.First, I commend the Government for their reform of the insolvency regime that has given rise to the need for these regulations. For years, Governments led by both main parties have been urged to borrow from the American insolvency regime that was brought in during the late 1970s. This new regime has learned from the American example and has stopped a situation, the curse of administrators in our system, in which a minority of creditors have had the power to stop a much-needed corporate restructuring process that could save both the company and many jobs. It may have taken the Covid crisis to propel the introduction of this new rescue culture to our insolvency laws, but the Government deserve credit for making it happen and for acting swiftly.
- 2:54 pm
- My Lords, I first thank the noble Lord, Lord Agnew of Oulton, for alerting me that the Corporate Insolvency and Governance Act 2020 might throw up some problems for the social housing, charitable, mutual and social enterprise sectors and that these would be dealt with through statutory instruments, of which I assume this is one.We are all concerned to make sure that tenants in social housing are fully shielded from any financial difficulties encountered by their private registered social housing providers; otherwise, they would risk losing their homes or face rent increases to market levels, especially if creditors were able to enforce security on their homes.The Minister has made it clear that the purpose of this SI is to exempt private registered providers of social housing from the new moratorium provisions of the Corporate Insolvency and Governance Act on the grounds that the existing regime, established under the Housing and Planning Act 2016, ensures superior protection for tenants. In that case I have no objections to the purpose of this SI.I have just two questions. The first is about cross-contamination; in a sense I am picking up a point partially made by the noble Lord, Lord Wood. As your Lordships will know, the business models for providers of social housing have become much more diverse, and a number are active in other parts of the housing market. In the wake of Covid, we are quite likely to see a number of those companies in financial difficulty. They may well seek the protection of a moratorium under the new corporate insolvency Act. How will the two moratorium regimes under two different pieces of legislation, affecting the same holding company, work out? What happens and who has priority?In addition, as the Minister will know, my colleagues and I have been concerned that banks are quite likely to manipulate any moratorium under the new Act, both to achieve higher fees and to improve their priority position. HMRC’s provisions in the Finance Bill to give itself super-priority adds another complication. Given all these different factors in play, who will be responsible for co-ordinating and resolving the complexity of all this?
- 2:57 pm
- My Lords, my interest in this statutory instrument is due to the fact that I served for nine years as a non-executive director of one of the largest housing associations in the UK. Naturally, therefore, the governance of registered providers of social housing—including routes to insolvency—was fairly uppermost in my mind, particularly as that period came before, through and after the financial crash.When, after the financial crash, many housing associations diversified into different areas of business and took on considerably more debt to frame their portfolios—often with more risky undertakings as margins got tighter—we understood that the Housing and Planning Act allowed for the Secretary of State and the social housing regulator to apply for the new framework at the time, which was to apply for a housing administration order. Given that the HPA 2016 has reduced the amount of time that a moratorium will apply from the pre-existing regime of 28 working days to merely 28 days—I accept that the housing administration order can allow for much longer periods —it is not entirely clear to me whether that tightening of the timeframe has an impact on the viability of housing associations.I wonder whether the Minister will be able to tell me how the social housing regulator will now assess the viability of housing associations caught in the current economic crisis, with several that are overextended and potentially may not survive. I know the department prefers consolidation, as with universities, to letting any housing association go under, as the Minister explained to us in his opening remarks.However, there are a lot of housing associations that are now overexposed to student housing. We are aware of what is going to happen to universities in that regard with the tightening of the student housing market—I could say collapse, but I will not be that gloomy. There is another set of them which, in addition to overexposure to student housing, came into the private housing sector in quite significant numbers around 2010 to 2012 because it was seen as more lucrative at the time. What is the Minister’s department doing, in terms of working with the regulator, to have early warning systems to ensure that the financial health of these overexposed housing associations is monitored during this extreme time?
- 3:02 pm
- My Lords, the Minister has introduced this statutory instrument with clarity and brevity; I congratulate him. The noble Lord, Lord Wood, has eloquently asked the question that I would ask. For me to repeat it would be superfluous and so I shall refrain from doing so.
- 3:03 pm
- My Lords, a few weeks ago, I thought I had seen the last of the Corporate Insolvency and Governance Act—CIG, for short—at least for while, but here it is again, or rather not here as this is an eligibility exclusion.As a starting point, let us look at what the social housing sector is not getting. The main features of the CIG moratorium were to enforce continuity of supply by negating supplier termination clauses during the moratorium, with debt relating to ongoing supply going up the creditor pecking order in a subsequent insolvency.There was also a new restructuring plan process that could be enforced on minority creditors, potentially making restructuring arrangements easier. There was quite a lot of concern that the changes to the priorities in the event of a subsequent insolvency handed too much power to financial institutions, which are probably the main beneficiaries of enhanced priority. This, it seemed, was going to be the price for having a moratorium.There ends my familiarity with the legislation relevant to these regulations, so I went through parts of the Housing and Regeneration Act 2008 and the Housing and Planning Act 2016 to see what the social housing sector had instead. I soon discovered that there is both a moratorium and other detailed provisions that impose objectives that do not appear in the CIG moratorium. I agree that it would be complicated to try to blend the two together, although I share other noble Lords’ concerns about when both are in the same holding company. I am not sure that I found all that much in common, other than the fact of a moratorium and creditors having to agree to extensions of the moratorium after the first period. There were bits that could have been contradictory if both co-existed without amendment.The Explanatory Memorandum says that the Government consider that the CIG moratorium provisions are unlikely to offer greater protection for private registered providers or their tenants. I agree with that. The moratorium possibility already exists, seemingly without having to buy it from financial institutions with enhanced priority. I am unsure whether not having the restructuring option is a loss, but with something as important as social housing, being cautious about new provisions must be right. If that provision proves useful and relevant in due course, maybe ways to extend just that part could be found.
- 3:08 pm
- My Lords, it is a particular privilege to follow the noble Baroness, Lady Bowles. She really is the best ferret there is on your Lordships’ Benches in the areas where she has an expertise.Many Members will realise that I have been interested in social housing from the days when I was elected to the London Borough of Islington—the first Tory leader in that century. I was not only the leader—I chaired the housing committee. That interest in the mutual movement has stayed with me, which is one of the reasons why I am making a short speech today. Your Lordships took through the Mutuals’ Deferred Shares Act 2015, so I have been fairly active in this world.For once, I can actually say a firm word of praise for the Ministry of Housing, Communities and Local Government, and for Her Majesty’s Treasury. They thought ahead and have been in a position to help if, tragically, any of the private registered providers of social housing found themselves in real financial difficulty. To them I say thank you so much—it is really good that my Government have looked ahead and taken some action.I have only a couple of questions. Is this likely to apply only to newcomers? We see in the briefing memorandum that there are 322 in toto. Is there any geographical spread that may lead to particular difficulties? Would I be correct in saying that this will not affect any of the traditional long-term trusts such as Peabody and all the others, some of which were created over a century ago?I also wonder a little why Northern Ireland is not covered. When I was a PPS in Northern Ireland, I was very much aware of the social housing movement there. I wonder why it would appear from the memorandum that Scotland has been added but not Northern Ireland.Finally, paragraph 7.2 of the Explanatory Memorandum says:“Financial difficulties in the social housing sector are rare”—
- Lord Empey has withdrawn from this debate, so the next speaker is the noble Lord, Lord Bhatia.
- 3:11 pm
- Lord Bhatia (Non-Afl) [V]My Lords, in these difficult times, private registered providers should be protected. They could suffer losses due to the coronavirus affecting their tenants, who are unable to pay their rents, but the tenants should also be protected from being evicted. This provision will protect the tenants in their houses, along with providers such as housing associations and registered providers.However, I wish to talk about the insolvency Act on the wider stage. During these difficult times, many businesses are suffering as they are having to deal with decreasing numbers of customers. Existing customers are unable to repay their debts; this poses cash flow problems for the companies, which in turn are unable to pay their creditors. It is a very vicious circle. The Act stops the creditors from taking legal action against such companies and forcing them into insolvency. Often, such companies are unable to pay their VAT and taxes to the Inland Revenue, which often takes priority over all other creditors. This Act is in some ways identical to the Chapter 11 legislation in the USA. This provision will allow many good companies the time to survive, as it will enable them to raise finance from other sources while finding new customers in the UK and abroad.