The government announced on the 23rd April (updated on the 25th) further measures to protect commercial tenants, including the temporarily voiding of statutory demands and winding-up petitions where a tenant company cannot pay their bills due to Coronavirus (COVID-19).
At the end of March 2020, the Government introduced measures to prevent landlords from forfeiting leases to commercial tenants for non-payment of rent until 30 June 2020. Although landlords were unable to forfeit (in the unlikely event that they wanted to in the current environment) there was no automatic rent holiday and tenants still remained liable to pay rent and other sums due under the lease in full, which has prompted many tenants to contact their landlords to try and agree (or in some cases demand) rental holidays, deferments and payment concessions.
However, some landlords have preferred to take action to recover debts owed to them, in particular by issuing statutory demands and winding-up petitions.
On 23 April 2020 (updated 25 April 2020) Alok Sharma announced further measures to protect commercial tenants from these ‘aggressive’ rent collection strategies and to ‘safeguard the UK high street’.
What exactly is Proposed?
As always, the devil will be in the detail!
The Government is proposing that statutory demands and winding-up petitions issued to commercial tenants will be temporarily voided. The ban is expected to apply where a company cannot pay their bills due to Coronavirus . Cannot pay is clearly different to not wanting to pay, because a tenant (quite understandably) wants to protect cash in the business.
It is understood that Winding Up Petitions will be reviewed by a court to determine why the debtor company is unable to pay its debts. If it appears that the inability to pay is the result of Coronavirus, the petitions will not be able to proceed, and no winding-up order will be made.
It is not clear at what point this court review will take place, but one would hope it will be prior to actually issuing the winding-up petition and paying the substantial official receiver fees and filing fees, which amounts to just under £2,000. It is similarly unclear how this assessment will be undertaken. Will the petition need to set out why the company says is unable to pay its debts, and will a landlord even have this information? Will there be a hearing, if so presumably this will take place remotely. Will landlords and tenants both be required to make submissions? How far will a court go on any such review? What level of financial disclosure will be required?
In the current climate, it is hard to find a company (particularly retail) not impacted by Coronavirus, but it seems to me that for the court to determine a tenant`s ability to pay they will at least need disclosure of management accounts, cashflow forecasts, bank position, and steps taken to utilise the Government assistance that is available.
Impact on Landlords
Whilst the Government clearly wants to encourage landlords to work with their tenants, the press release also makes it clear that tenants should ‘pay rent where they can afford it’ or ‘pay what they can’ in recognition of the difficulties faced by landlords. However, in the absence of any real enforcement powers for landlords, tenants may be more likely to retain or divert the cash they do have available elsewhere to cover other demands, and landlords may be left out-of-pocket.
There have been no further announcements of measures to support landlords, who are themselves experiencing their own pressures and concern about meeting their obligations. Landlords are instead directed to the Government support measures already available and faint reassurance that the Government is ‘working with banks and investors to seek ways to address these issues and guide the whole sector through the pandemic.’
When will this come into force?
The changes are expected to be included in the Corporate Insolvency and Governance Bill (‘the Bill’), which the Government announced on 28 March 2020 would be passed ‘at the earliest opportunity’.
Parliament entered into Easter recess early, on 25 March 2020, and only returned on 21 April 2020, so the Bill has not yet been presented to Parliament. However, the Bill is expected imminently. When enacted, the restrictions on presenting winding-up petitions and ability to avoid statutory demands will be in force until 30 June 2020 and can be extended in line with the moratorium on commercial lease forfeiture.
In addition, the announcement sets out proposed changes to Commercial Rent Arrears Recovery (CRAR), the method of seizing tenant property for sale to meet rental debts owed and, under the changes, CRAR will only be available to landlords when the arrears amount to 90 days or more.
Should you wish to discuss anything covered in this article, please contact Lee Pearce, Joe Brightman or Molly Frankham.