What new measures have been introduced by the UK government to provide further support to commercial tenants struggling to pay rent?
The Corporate Insolvency and Governance Bill (the "Bill") was introduced to parliament on 20 May 2020 and introduces temporary provisions to void statutory demands made between 1 March 2020 and 30 June
The Bill will also restrict winding up petitions from 27 April 2020 to 30 June 2020. These temporary measures are intended to prevent creditor action against otherwise viable companies struggling because of coronavirus
As such a Winding-Up petition cannot be presented by a creditor during the period beginning on 27 April 2020 (it has retrospective effect) until 30 June 2020, or one month after the coming into force of this Bill, whichever is the later, unless the creditor has reasonable grounds for believing that:
coronavirus has not had a financial effect on the debtor
the debtor would have been unable to pay its debts even if coronavirus had not had a financial effect on the debtor
The meaning of "financial effect" appears to be a low threshold. The Bill suggests that coronavirus has a “financial effect” on a debtor if the debtor’s financial position worsens in consequence of, or for reasons relating to, coronavirus
These measures are in addition to earlier emergency insolvency law and other related changes, such as the restriction on eviction of tenants until 30 June which is contained in the Coronavirus Act 2020
What will this mean, in practical terms, for Landlords and Tenants?
Removing the threat of winding-up petitions for arrears relating to a period during the current restrictions, will provide much-needed breathing space for some tenants, such as struggling non-essential retail businesses that have not been able to trade during the current restrictions. It may therefore prevent a wave of insolvency filings, at least for now. However, it will also transfer pressure onto landlords and other creditors whose income may also have been significantly reduced as a result of COVID-19, and who have their own creditors to pay. Much will depend upon the attitude of the Landlords' funders when payments become due
Upon the issue and subsequent advertising of a winding-up petition in respect of a debtor company, the debtor’s bank accounts are usually frozen once the petition is advertised. Suspending winding-up petitions therefore removes this debtor risk, but it also removes the protection a winding-up petition provides for the debtors’ creditors as a whole
Is there any option for a Landlord to pursue arrears up to 30 June 2020?
There is no doubt that landlords will, temporarily at least, have limited options for the recovery of unpaid rent that relates to a period during the restrictions but the new legislation may not prevent landlords from deploying other remedies, such as drawing down on rent deposits and demanding payment from guarantors. In these exceptionally difficult times, it is important that tenants who find themselves in financial difficulty take this opportunity to engage with landlords and reach a solution that works for both parties but landlords will be concerned that these measures will mean some tenants stop paying rent altogether despite the fact that the tenant may still be trading from the premises
It is important to note that if a creditor can prove that a debtor would have been unable to pay its debts, even if coronavirus had not had a financial effect on the debtor, then a creditor may still issue a Statutory Demand or a Winding-Up order. It remains to be seen whether there will any further clarity given around this exception however, for now, a creditor Landlord may still be able to issue a statutory demand or winding-up order where there are long standing rental arrears – if the Landlord can prove that the Tenants ability to repay does not relate to, or has not significantly worsened, due to the COVID-19 pandemic.