Insofar as commercial property rent claims are concerned, the crucial points are:
1. A petition for the winding up of a UK registered company on the ground that the company has failed to satisfy a statutory demand cannot be presented where the demand was served between 1 March and 30 June 2020 (although that June date could be deferred if it takes time for the bill to come into force).
2. Landlords won’t be able to present a winding up petition during that same period even following a court judgment unless the landlord as creditor has reasonable grounds for believing that:
(a) coronavirus has not had a financial effect on the company; or
(b) the facts by reference to which the relevant ground applies would have arisen even if coronavirus had not had a financial effect on the company.
3. Landlords will be prevented from presenting a winding up petition following a statutory demand served outside the same four months again unless it has the same reasonable grounds in (a) and (b) above
4. The more general ground of insolvency, that a company is unable to pay its debts as they fall due, may not be used to present a petition during the four month period.
5. A petition may not be presented during the relevant period on the ground that it can be proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities, unless the creditor has reasonable grounds for believing that:
(a) coronavirus has not had a financial effect on the company; or
(b) the relevant ground would apply even if coronavirus had not had a financial effect on the company.
Whether the prohibition will be extended beyond 30 June is anyone’s guess at the moment. The new qualifications mean that there will be a pre-petition approval process though the courts (taking time and increasing costs).
How would a landlord go about proving to the court’s satisfaction that a) coronavirus has not had a financial effect on the debtor tenant company or debt would have arisen even if coronavirus had not had a financial effect?
In reality, this Bill effectively removes the insolvency process from the landlord’s armoury in rent recovery. An argument under b) may certainly fly in some of the starker cases of historic tenant default, but whether the time and cost of persuading a court are proportionate, is another matter. A debt claim through the courts may be the quicker and better pressure point for landlords who want to take a stand at this juncture. Holding a county court judgment when the ban is removed would be a head start in any ensuing insolvency process.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com
Client Alert 2020-336
