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Lawbite: New Year rent arrears resolution?

  • United Kingdom
  • Litigation and dispute management
  • Real estate
  • Real estate litigation - LawBite

25-09-2020

The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020

https://www.legislation.gov.uk/uksi/2020/1031/regulation/2/made

Yesterday (24th September) the Government unveiled The Corporate Insolvency and Governance Act 2020 (Extension of the Relevant Period) Regulations 2020 (the “Regulations”).

The Regulations, which come into force on 29 September 2020, now means that no winding-up petition can be presented based on a statutory demand served between 1 March 2020 and 31 December 2020 (originally applied between 1 March and 30 September). This is regardless of whether the sums demanded accrued as a result of the effect of the pandemic on the debtor’s business.

The Regulations also extend the prohibition on winding-up petitions being presented unless certain conditions are satisfied, such that it is now in place between 27 April and 31 December (originally this applied between 27 April and 30 September). These conditions are that the creditor must have reasonable grounds for believing that (a) coronavirus has not had a financial effect on the company, or (b) that the debtor would be in the same position even if coronavirus had not had a financial effect on it.

Previously, where a commercial tenant cannot pay their rent, a landlord may use the above measures to prompt a defaulting tenant to pay their arrears. If the tenant still refused to pay, the landlord could make a winding-up petition to the court, ultimately forcing the closure of the company unless the arrears were paid.

Key points

  • given the far reaching impact of Covid, the threshold to bring a winding up petition is, at least until the end of the year much more difficult to satisfy. Practically most landlords will have difficulty using the measures to secure recovery of the arrears
  • the provisions apply to companies only. Individuals do not have similar protection
  • this is the latest extension in a line of tenant “Covid” friendly measure being further extended by the government. Only last week, the forfeiture moratorium provided for in the Coronavirus Act 2020 was extended in England until 31 December. Restrictions on the recovery of arrears by CRAR proceedings have also been extended until the end of the year. Whilst the government continues to support commercial tenants, landlords will be looking to see what, if any, statutory protections or measures might be afforded to them
  • abruptly ending all these protective measures on 31 December 2020 could see the Court  inundated with winding-up petitions and forfeiture proceedings in the new year