Property-Insolvency Update

Thu, 24 Jun 2021

Extension of existing restrictions on enforcement and entirely new proposed restrictions on landlord action

As of 16/06/21 the Government announced it intends to: (i) extend existing restrictions on stat. demands and winding-up petitions by three months to 30/09/21, (ii) extend restrictions on rent-related forfeiture of business tenancies by nine months to 25/03/22 and on commercial rent arrears recovery action by nine months to 25/03/22 and (iii) introduce a new Act of Parliament to deal with the accrued rent arrears of businesses that needed to close during the pandemic.

Insolvency restrictions are being extended to 30/09/21

Returning to stat. demands and winding-up petitions which are being extended (for the time being) to 30/09/21: (i) these restrictions affect all types of creditor and protect all types of debtor company, including domestic and foreign companies and partnerships that a creditor is striving to begin to wind-up proceedings with, (ii) individual debtors are not protected from personal stat. demands and bankruptcy proceedings by the restrictions, (iii) stat. demands served on corporate debtors before 01/10/21 cannot be relied on as a basis for winding up under the restrictions, (iv) prior to 01/10/21 a creditor cannot present a winding-up petition under these restrictions unless the petition can both:

A. Plead and prove one of the four statutory bases for deeming the company to be uncapable of paying its debts and
B. plead and prove it has reasonable grounds for believing the statutory basis relied on above would have resulted regardless of the companies worsening financial position due to coronavirus, (v) prior to 01/10/21 the procedure is altered if a creditor is able to present a petition. Additionally, the debtor does not need to pursue a validation order.

Other three-month extensions (30/06/21 – 30/09/21) being extended: (i) a temporary exemption from new rules that restricted a supplier’s reliance on contractual ‘ipso facto’ clauses that had been afforded to small suppliers and (ii) the conditions for invoking the new insolvency ‘Moratorium’ that were temporarily relaxed. It is possible there will be further extensions to these.

Restrictions on rent-related forfeiture of business tenancies are being extended to 25/03/22

Under s.82 Coronavirus Act 2020: (i) a landlord may not forfeit a relevant business tenancy on the grounds of non-payment of rent, (ii) the immense number of forfeiture claims expected by landlords on the grounds of non-payment is set to be postponed, (iii) the s.82 restriction that was initially set to last until 30/06/20 has been extended by three months four times, setting this nine-month extension apart, (iv) the restriction only applies to forfeiture for non-payment of rent and (v) for the purposes of s.82 ‘rent’ includes any sum a tenant is liable to pay under a relevant business tenancy.

The restrictions are not limited to specifically assist certain sectors such as hospitality and it is thought the extensions will not be either once drafted.

Considering the consistency in the attempt to protect tenants’ businesses over landlord’s interests, it is unlikely the Government’s statutory instrument will be negated by a vote in either House of Parliament.

Restrictions on commercial rent arrears recovery (CRAR) are being extended to 25/03/22

An almost nine-month extended restriction is happening to the existing restrictions on landlords exercising CRAR: (i) as of 25/04/20 CRAR cannot be exercised by a landlord in the absence of certain levels of rent arrears, (ii) for any intended CRAR from 24/06/21 the minimum rent arrears threshold is now six quarters’ worth of rent, (iii) the minimum rent arrears threshold is not set to be increased despite the temporary restriction continuing for another nine months and (iv) landlords may not count VAT or interest when calculating arrears owed.

A new Act of Parliament will deal with the accrued rent arrears of businesses forced to shut during the pandemic

The Government intends to bring a new Act of Parliament to deal with the rent arrears accrued by tenants throughout the pandemic. It appears to intend to urge tenants to prioritise payment of future rent whilst being protected against landlords seeking to recover past arrears.

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