Is Presenting A Winding Up Petition Too Much Of A Risk (UK)?
Further to our blog about measures announced by the Government to protect commercial tenants from “aggressive” rent collection strategies, the Government subsequently confirmed that the restrictions will apply (unless extended) from:
- 27 April 2020 to 30 June 2020 for presentation of winding-up petitions; and
- 1 March 2020 to 30 June 2020 for statutory demands.
However, the legislation to implement these temporary measures is not yet in force and therefore making the decision about whether to present a petition is difficult because (as discussed in more detail in our previous blog) there are a number of uncertainties:
- The restriction applies where the reason for non-payment is COVID-19 related, but we do not know who has to show that the reason for non-payment is COVID-19 related. Is it the petitioning creditor or the debtor? If it is the petitioning creditor will they even have access to this information?
- At what stage will an assessment be made, as to whether the reason for non-payment is COVID-19 related and how? What will the costs implications be?
- Do the restrictions apply to all petitions or just those presented by a landlord?
While the announcement was pitched at preventing aggressive landlords it also refers to “all companies”, suggesting that the restrictions could apply to all petitions where non-payment is COVID-19 related.
In the recent case of Short Gardens LLB v London Borough of Camden Council Snowden J said, about the press statement:
I anticipate that the prohibitions are not intended to extend to ….. petitions which are not based upon arrears of rent
However the position is far from clear and will only be clarified when legislation is published.
In the meantime a company (who is not a landlord) wishing to present a petition takes a risk if the reason for non-payment of the petition debt is COVID-19. The petition may be void, and if it is, who pays the costs?
Other Options for Landlords
While it appears the restrictions may prevent any petitions from being presented where non-payment is as a result of COVID-19, landlords are particularly affected given the pressure on retail at the moment. If a landlord cannot forfeit or present a winding up petition there are still a handful of options:
- Did the tenant provide a guarantee? Can the landlord enforce that?
- Did the tenant provide a rent deposit?
- Is a creditor’s administration petition a possibility?
- Landlords may still be able to use commercial rent arrears recovery (CRAR)
The amendments to the CRAR regime means that landlords cannot use CRAR unless there is an “amount equal to 90 days’ rent” overdue. Given that under most leases rent is due quarterly, there will be 90 days’+ rent overdue if one quarter is missed. As such CRAR may still be a viable option for many.
This post was written by Emily Davis.