The retail industry is reporting that certain landlords are attempting to circumvent the COVID-19 three month prohibition on forfeiture for non-payment of rent, by issuing their tenants with statutory demands for outstanding rent instead.
What is a statutory demand for outstanding rent?
For the non-initiated, a statutory demand gives debtors 21 days to pay the debt. If the debt is not paid in that time, then the landlord can issue a petition to wind-up the company.
In these lockdown times there is difficulty for tenants in accepting service. Even if tenants are able to pay the outstanding rent, where they have closed head offices and registered addresses, they might not even receive the demand until it is too late.
However, will this tactic is be as effective as landlords hope? The press have reported that a moratorium on presenting petitions is currently being considered, and the insolvency division of the City of London Law Society has submitted a document to the government urging a suite of emergency reforms.
This would certainly make sense given the change in insolvency rules announced by the Government late last week. Further reforms are said to be supported by Institute of Directors and the CBI.
Removal of winding-up petitions
These proposed reforms would include removing creditors’ ability to present winding-up petitions, with the introduction instead of a 90-day grace period triggered by directors “stating that the company is facing temporary liquidity or operational challenges as a result of circumstances related to COVID-19”.
The suggestions also include an extension of the ten day moratorium period within which company directors must file a notice of intention to appoint administrators.
So, will landlords be able to issue a petition before the expected changes to the operation of winding-up petitions comes into effect? Even if we have to wait a while for these proposals to become reality, all winding-up petitions are currently being adjourned, so it is doubtful that landlords will get too far with the courts.
Last Wednesday the court sat for the first time since restrictions were imposed, and Companies Court Judge Mullen adjourned all 306 Petition hearings, in batches to dates 12-19 weeks in the future. With no obvious online or remote substitute for the general winding-up list, it is not difficult to envisage the same approach being taken in coming weeks. Therefore, a statutory demand may not be quite the stick landlords envisaged.
However, these actions do increase the pressure on the Government to put together a package of measures to support landlords, who are currently where the buck stops in terms of economic support for the economy.
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