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Government moratorium on landlord enforcement: an insolvency expert’s view

Government moratorium on landlord enforcement: an insolvency expert’s view

24th April 2020 - Published by Kuits litigation team

The Government has issued a press release entitled, “New measures to Protect UK high street from aggressive rent collection and closure”. The press release built on measures introduced to bar forfeiture for non-payment of rent under commercial leases by announcing restrictions on the use of Commercial Rent Arrears Recovery, and also a bar on the use of proceedings generally, including winding up petitions, by landlords against tenants.

This article is concerned with the legal issues for landlords considering insolvency proceedings (commercial factors for landlords having been explored in the other article LINK).

The Government’s press release notes that the following will be incorporated into the new Corporate Insolvency and Governance Bill:

  1. “Statutory demands and winding up petitions issued to commercial tenants to be temporarily voided…”
  2. “The government will temporarily ban the use of statutory demands and winding up orders where a company cannot pay their bills due to coronavirus, to ensure they do not fall into deeper financial strain.”
  3. “Landlords and investors asked to work collaboratively with high street businesses unable to pay their bills during COVID-19 pandemic.”

Many landlords and tenants are negotiating, but some are not. It is foreseeable that tenants in particular may seek to avoid paying rent to preserve cash.

Until the Bill is released, and passed, there is substantial uncertainty about insolvency proceedings. The new Bill will mean that landlords cannot use insolvency procedures “where a company cannot pay their bills due to coronavirus”.

This raises a number of questions:

  • What about businesses who can pay their rent? Not all tenants are struggling. How will (a) the legislation; (b) the courts distinguish in practice? Will it only be in respect of rent that cannot be paid due to Coronavirus (as suggested by Quote 2 above), or will there be a blanket ban as per Quote 1 above?
  • If a landlord wanted to issue a petition today, would that be an abuse of process? There is only a government statement; there is no Bill before Parliament.
  • What about existing winding up petitions issued by landlords:
    • Will they be stayed? If a petition is stayed, does section 127 of the Insolvency Act 1986 (which provides that any payment made by a company after presentation of a petition is void if a winding up order is made) mean that tenants would need to apply for validation orders to cover the risk that when the stay is lifted, an order is potentially made?
    • Will they be automatically dismissed? What about the costs of a petition brought by a landlord for a debt contractually due to the landlord in line with legislation available at the time of presentation?
    • What if a petition issued by a landlord has been advertised in the Gazette? That would likely have led to the tenant’s banks freezing the tenant’s bank accounts. The tenant’s business may in practice be inoperative already.
    • What is a landlord has received a notice of support from another creditor who is not another landlord? Will that creditor be able to take carriage of the petition?
  • Can landlords support existing winding up petitions brought by creditors who are not landlords?
  • Will landlords be able to apply for administration orders?
  • Will landlords be able to pursue guarantors?
  • Will landlords be able to draw down on rent deposits and demand these be topped up? Will this be outside the ambit of the Bill? (Caution: landlords should not take this step without first obtaining legal advice)

Both landlords and tenants need to see proper legislation as soon as possible so that they can consider how to proceed.

For specialist advice on any of the points raised in this article, please contact Richard Palmer on 0161 503 2996 or email richardpalmer@kuits.com.

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