What is a landlord now to do to collect rent from a solvent tenant?
The Corporate Insolvency & Governance Bill ("the Bill") was laid before Parliament on 20 May 2020. It follows on from the Government's Press Release of 23 April 2020 and it is due to be discussed next in the House of Commons on 3 June 2020. The proposed provisions of the Bill have taken almost a month to draft but they are likely to be subject to both substantial opposition from landlords as well as much debate in both Houses, the Commons and the Lords.
The relevant provisions in relation to using insolvency proceedings to recover rent or other sums from corporate tenants (or any debtor at all) are to be effective from 27 April 2020 and they are to have retrospective effect in relation to any statutory demand served on or after 1 March 2020.
These provisions come on top of the restrictions already in place to prevent forfeiture, or landlords levying distress through CRAR, in relation to non-payment of the March's quarter's rent or service charge. But, somewhat surprisingly, they are not limited to landlords; they relate to all creditors so will apply to suppliers and lenders as well. And, rather than putting the onus on tenants to establish they cannot pay due to the virus, the new provisions in relation to insolvency steps put the onus on the landlord to establish the tenant can pay notwithstanding the virus.
In essence, what is proposed by the Bill in relation to debt recovery is as follows:-
- Companies can far more readily seek protection from any form of proceeding or action by entering into a statutory moratorium if this is necessary to seek to rescue the company as a going concern. This gives the company an initial protection of 20 business days but this period can be extended. So no action can be taken during this period by any creditor without permission from the court.
- Any statutory demand served in the period 1 March -30 June 2020 is automatically invalidated so no Winding Up Petition can be presented based upon any such demand. This period will be extended until one month after the legislation is in force so it is likely to extend into, at least, July. The period from 1 March 2020 until one month after the Bill becomes the Act is called "the relevant period".
- No Winding Up Petition can be presented anyway from 27 April 2020 until the end of the relevant period:-
- based on a statutory demand served before the relevant period;
- to enforce a Judgment; or
- because the company is unable to pay its debts;
unless the creditor has reasonable grounds for believing that the company's financial position and ability to pay has been unaffected by the coronavirus.
- Essentially, the debt collection options for landlords are now limited to:-
- waiting for the restrictions to expire- but they could well be extended (particularly given that substantial default is anticipated in relation to the June quarter's rents);
- commencing court proceedings to seek to secure a Judgment for all sums due (and costs and interest) that can then be enforced by execution on the tenant's goods (or by a Winding Up Petition if the legislation then so permits). But tenants may well seek to defend such proceedings on some fanciful ground in order to seek to delay having to make payment. Even when judgment is obtained, tenants can apply to pay by instalments;
- negotiating payment terms with the tenant- this being the main intention behind the legislation. However, many tenants are not just seeking more time to pay but rent concessions (even when they can afford to pay and, in some cases, have been trading throughout).
The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.