Recovery of Rent Arrears – further developments

Following the posting of the article I co-wrote with Morayo Fagborun-Bennett on the Recovery of Commercial and Residential Rent Arrears, there have been a couple of developments of note.

Firstly, the government announced on 5 June that the ban on evictions is to be extended by two months to 23 August 2020. This ban applies to all possession claims, not just those where the ground of possession is based on rent arrears.

Secondly, Morgan J in  A Company (Injunction To Restrain Presentation of Petition) [2020] EWHC 1406 (Ch) has confirmed that, remarkable as it seems, in  these unusual times the court will take account of legislation which has not yet received royal assent (in this case the Corporate Insolvency and Governance Bill (CIG Bill) ) in making its decision.

In this case, the landlord of a high street retailer served a statutory demand in respect of unpaid rent arrears and had e-filed a winding up petition. The tenant issued an application to restrain presentation of the petition on a number of grounds.

Morgan J restrained the presentation of the petition on an interim basis on one ground only, namely, that it was improbable that the court would make a winding up order as by the time the petition was heard, as it was likely that the CIG Bill would have become law and the tenant would be able to rely on the provisions contained in Schedule 10.

The effect of Schedule 10 is that, in essence,a court can only wind up a company if it is satisfied that the facts on which the petition is based (under section 123(1) or (2)) of the Insolvency Act 1986 would have arisen even if coronavirus had not had a financial effect on the company.

The judge had been provided with a substantial body of evidence as to the effect of coronavirus on the finances of the company and whether the facts on which the petition would be based would have arisen even if coronavirus had not had a financial effect on the company.  He concluded that the evidence before him showed that there was a strong case that the presentation of a petition would not result in the court making a winding up order but that its presentation would nonetheless have a seriously damaging effect on the company.

The CIG Bill completed all its stages in the House of Commons on 3 June 2020 and will now go to the Lords. It is anticipated that the CIG Bill will become law by the end of June. In the meantime it appears that the door has been well and truly been closed on landlords wishing to recover commercial rent arrears which have arisen as a result of the pandemic via the insolvency route.

Amanda Eilledge