Extension of Existing Restrictions on Enforcement of Winding Up Petitions and Statutory Demands & New Proposed Restrictions on Landlord Action
On Wednesday 16th June 2021, the government announced its intention to extend various pieces of COVID-related legislation, such as:
An extension to the existing restrictions on statutory demands and winding up petitions against companies until 30th September 2021;
An extension to the restrictions on rent-related forfeiture of business tenancies until 25th March 2022; and
An extension to the restrictions on commercial rent arrears recovery (“CRAR”) actions until 25th March 2022.
The government have also expressed their intention to introduce an entirely new statute to deal with accrued rent arrears of businesses which had to shut during the pandemic. This new legislation will force landlords to waive or agree to long-term repayment plans with their tenants and providing a binding arbitration process in default of such agreement.
Restrictions on Statutory Demands and Winding up Petitions
The Corporate Insolvency and Governance Act 2020 (CIGA) came into force on 26 June 2020, introducing several support mechanisms to help businesses struggling with the effect of the coronavirus pandemic.
On 24th September 2020, the government brought in the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 S.I 2020/1031 (the Regulations). This is a statutory instrument which enables extensions of time for particular measures brought in by CIGA 2020.
This statutory instrument has been used to extend the current restrictions from 30th June 2021 until the 30th September 2021. The restrictions on statutory demands and winding up petitions affect all types of creditor and protect all types of debtor company. The restrictions do not, however, protect individual debtors from personal statutory demands and bankruptcy proceedings – this is the case even if, for example, the debtor was a commercial tenant or a sole trader operating a business.
Statutory demands which have been served on corporate debtors before 1 October 2021 cannot be relied upon as a basis for winding up the debtor company. This is the case even if it can be shown that the debtor has been entirely unaffected by the pandemic.
There is a prospect of these restrictions and provisions being extended even further in due course beyond 30th September 2021. When the Covid restrictions were first enacted on 25 June 2020, a long-stop date of 30th April 2021 was introduced, however this has now been pushed back to 29th April 2022.
Restrictions on Landlords
The existing restrictions on forfeiture of business tenancies are to be extended by almost nine months.
These restrictions prevent landlords from forfeiting a business tenancy on the grounds of non-payment of rent however it is worth remembering that there is currently no restriction on landlords forfeiting a business lease on the basis of a breach of lease. The restrictions on landlords exercising CRAR has also been extended for almost nine months.
There is no doubt that there is an expected tsunami of forfeiture claims for non-payment of rent to come once the restrictions eventually lift.
The Government has indicated that it intends to bring a new statute to deal with the vast arrears of rent which tenants may have accrued to-date through the pandemic. There is potential for such arrears to be “ringfenced” and its intention appears to be to encourage tenants to prioritise payment of new/future sums of rent. However, we must await the detail of the draft bill to understand these changes.
The effects of CIGA 2020 and the Regulations have brought about significant changes to insolvency law. If you need advice on how the CIGA 2020 provisions affect your company please get in touch with Farleys’ specialist insolvency team on 0845 287 0939 or contact us by email.