Winding up petitions: a return to the old normal? Except for landlords

The new month sees a partial re-instatement of the legislation permitting creditors to serve winding up petitions on companies.  However, the UK Government has adopted a softly, softly approach; this is seen from the temporary increase in the amount that must be owed from the modest £750 to £10,000 and the requirement for creditors to seek proposals for payment from a debtor business, giving them 21 days for a response, before they can proceed with winding up action.  The measures are said to protect small businesses as they seek to rebuild their stability.

Unfortunately, landlords will not yet benefit from this relaxation of the protectionist COVID-19 rules.  This is in line with the continuing suspension of forfeiture and the effective suspension of Commercial Rent Arrears Recovery (the “CRAR”), by requiring that the minimum net unpaid rent that must be outstanding before CRAR can be used is 554 days.

The new legislation has introduced the concept of an “excluded debt”. An “excluded debt” is  one for rent that a tenant is liable to pay under a relevant business tenancy in England and Wales, which is unpaid by reason of the financial effect of coronavirus.

The wording of the legislation dangles the elusive bait that if the landlord believes it can prove that the rent is unpaid because the tenant is taking advantage of UK Government policy to help with its cash flow, then a winding up petition could still be issued, provided that  the arrears are for more than £10,000 and the debtor must be given 21 days to offer a payment plan.

In practice, proving that the COVID-19 pandemic has not caused the tenant’s financial difficulties may be a big ask and is unlikely to win much sympathy from the court.  Indeed, the UK Government is clear that it does not want COVID-19 rent arrears cases clogging up an already over-burdened court system.

In August 2021, the Department for Levelling Up, Housing and Communities and the Ministry for Housing, Communities and Local Government published a policy statement Supporting businesses with Commercial Rent Debts which envisages the publication of a strengthened version of the Code of Practice for commercial property relationships during the COVID-19 pandemic.  This is likely to emphasise that resolution of the payment of arrears accrued during the relevant COVID-19 period should be the subject of a negotiated settlement  between landlord and tenant.  If these negotiations fail, then, and only then, will the parties be able to engage in the binding statutory arbitration scheme.  The UK Government has not provided details of this scheme, as it is still engaging with stakeholders, however it is likely that both landlord and tenant will both be expected to share the economic pain caused by the COVID-19 pandemic.

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