Tenant liquidation/winding-up - FAQs for landlords

Liquidation allows for the realisation of the company’s assets, the dissolution of its liabilities, and subsequent dissolution of the company. In short, it is the process by which a company is brought to an end.

A liquidation will be either:

• voluntary (by the members of the company), either:
  • members' voluntary liquidation where the company is solvent, or
  • creditors' voluntary liquidation (“CVL”) where it is not

or

• compulsory (by the court) (“CL”), on one of seven specified grounds, normally that the company is unable to pay its debts. Under the Insolvency Act 1986, a company is unable to pay its debts if:
  • a valid statutory demand is served which is not paid for three weeks;
  • a court judgment cannot be enforced;
  • the court is satisfied that the company cannot pay its debts as they fall due (the cash flow test), or the court is satisfied that its assets are worth less than its liabilities (the balance sheet test).

Under a CVL, a landlord retains a right to forfeit the premises or exercise other methods of rent arrears recovery. Under CL, the consent of the liquidator or the Court is required. See also Corporate Insolvency – implications on forfeiture/CRAR and on Rental Liability.

Under both CVL and CL, rent arrears rank as an unsecured debt. However, the liquidator will be liable to pay rent and business rates on a day to day basis if he retains the premises for the purposes of the liquidation.

Unlike most other forms of tenant insolvency, liquidators can often choose to disclaim the lease and return the property to the landlord.

Where the landlord is keen for certainty and/or to regain possession of the premises, it may serve notice on the liquidator requiring him to decide within 28 days whether or not he is going to disclaim the lease.

See also implications of disclaimer.