Time's up for winding up (as an enforcement method for commercial landlords)
min readThe hotly anticipated announcement from the government that it would step in to stop winding up petitions being presented against commercial tenants for unpaid rent came late yesterday (Thursday 23 April 2020).
Some commercial landlords had been using statutory demands and winding up petitions (or, at least, the threat of them) as an enforcement tactic, after their ability to forfeit the lease was curtailed. This was seen by many as a loophole which was being exploited for the purposes of rent recovery.
Alok Sharma (the Business Secretary) has announced that, to protect commercial tenants (and, specifically, high street shops) statutory demands and winding up petitions issued to commercial tenants will be temporarily voided until 30 June 2020 (a measure introduced to the Corporate Insolvency and Governance Bill) and changes to the use of CRAR (Commercial Rent Arrears Recovery) will also be introduced into the Coronavirus Act.
The presentation of a winding up petition itself is not banned but any winding up petition that claims that a 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 as a result of COVID-19.
Whilst this measure doubtless helps commercial tenants, I commented in a previous post regarding these (then) potential changes that this ban may result in a debtor company which knows no petition can be presented against it for a period of time making a tactical decision not to pay creditors even where it is financially able to do so, to protect its own position. In its announcement, the government has said that it "calls on tenants to pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords too" but I query how much effect this call on tenants will have in practice.
Are commercial landlords now the next in line to call on the government to offer them financial support?
the government will temporarily ban the use of statutory demands and winding up orders where a company cannot pay their bills due to coronavirus, to ensure they do not fall into deeper financial strain.
