Restrictions on Winding Up Petitions edges closer

In my previous articles issued on 1 April 2020 and 7 April 2020 I discussed the impact that the Coronavirus had had on Winding Up Hearings, and how the Court was embracing and utilising video conferencing to enable hearings to go ahead in the current social distancing world.

In both articles, I highlighted that there was an expectation that measures would soon be introduced to temporarily prevent, or at least limit, the issuing of winding up petitions and the making of winding up orders. In a Press Release issued by the Business Secretary Rt Hon Alok Sharma MP on 23 April 2020, it has been confirmed that the Government is shortly to introduce legislation that will address aggressive debt recovery action being taken by some Landlords in relation to rent collection.

The Coronavirus Act 2020 limits the ability of Landlords to recover possession of residential properties or take steps to forfeit commercial leases on the basis of rent arrears. Whilst many Landlords have looked to work with their Tenants to come to a mutually agreeable solution to the economic issues brought about by Coronavirus, others have taken to threatening to issue, and issuing, winding up petitions as a way of securing payment of rent from Commercial Tenants who, for one reason or another, have not paid their rent. Some Landlords have also sought to rely on Commercial Rent Arrears Recovery (“CRAR”) to recover outstanding rent, leaving some Tenants to wonder how they will operate their businesses as and when the world returns to ‘normal’.

Until such time as the Corporate Insolvency and Governance Bill is finalised and becomes law, it remains unclear as to what measures are going to be introduced to combat Landlords taking these steps. Provisions in the Coronavirus Act 2020 dealing with rented property, whilst welcomed by many, didn’t go as far as some had expected given the tone of an earlier Press Release on protecting tenants. The devil will, therefore, be in the detail of the Act.

Whilst yesterday’s Press Release focuses heavily on commercial rents, in the “Notes to Editors” at its conclusion, it does state that

“Under these measures, any winding-up petition that claims that the company is unable to pay its debts must first be reviewed by the court to determine why. The law will not permit petitions to be presented, or winding-up orders made, where the company’s inability to pay is the result of COVID-19.”

It is possible, therefore, that there may well be a wider restriction on the issuing of winding up petitions and making of winding up orders. However, given the Press Release mentions that “the new legislation to protect tenants will be in force until 30 June, and can be extended in line with the moratorium on commercial lease forfeiture”, Commercial Tenants certainly appear to be the focus of the measures to be introduced.

The Press Release records that

  • statutory demands and winding up petitions issued to commercial Tenants are to be temporarily voided; and
  • changes and to be made to the use of CRAR, with Landlords being prevented from using CRAR unless they are owed 90 days unpaid rent

This should provide some comfort to Tenants of Landlords that have a chosen to adopt an aggressive debt recovery approach to unpaid rent.

Another article will be produced as and when we have more news. In the meantime, if you have any queries arising from this article, or would like to suggest a topic for a future article, please contact Chris Drinkall on 01482 337367 or christopher.drinkall@rollits.com Chris can also be followed on Twitter at @drinkall_chris and on LinkedIn

Posted on: 24/04/2020

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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