Can Government proposals stop winding-up petitions for rent arrears now?

An unreported companies case on 6 May 2020 has put a stop to a commercial landlord's threat to put the tenant into liquidation for rent arrears.

In that case, a Companies Court judge has granted to a retailer an interim injunction restraining its landlord from presenting of a winding-up petition for arrears of rent caused by the COVID-19 pandemic. Details have not yet been published and the source remains confidential.

Shorts Gardens v Camden

The injunction was reportedly granted in reliance on Shorts Gardens LLP v Camden London Borough Council [2020] All ER (D) 159 – a decision from 27 April 2020, even though in that case the court dismissed the applications for an injunction as an "abuse of process". In the Shorts Gardens case, the court was (on the facts of the case) unsympathetic to the applicant as: (a) the majority of the unpaid debts upon which the petitions were based pre-dated the impact of the coronavirus, (b) those debts were unpaid business rates and court orders owed to a local authority, and (c) those debts had up to that point been contested for entirely different reasons. It presumably also did not help that one of the applicants also had a civil restraint order made against it....

Considerations for an injunction

There is a question mark over how far courts can take account of the announcement from the business secretary, Alok Sharma, on 25 April 2020 before it becomes law. However, in the as yet unreported case from 6 May 2020, the court reviewed the language of the proposed measures and noted that the clear focus of the government announcement was on "the plight of tenants of retail and commercial properties facing demands from their landlords". 

It appears that an interim or final injunction restraining landlords from presenting a petition is more likely to be given if:

• the tenant is formulating a restructuring proposal and has evidence from the proposed nominee that it would be a better outcome for creditors than winding-up;
• the tenant is within a "protective class" of tenants (such as retail or hospitality) to whose benefit the "avoidance" measures presaged in the announcement were targeted directly to prevent the threat of winding-up petitions;
• the tenant can show financial evidence that the reason (or main reason) it cannot pay its rent is due to the COVID-19 crisis;
• it the business threatened by the injunction is one which was forced to shut down; and
• the petition is brought for arrears of rent which accrued following the pandemic.

Corporate Insolvency and Governance Bill

At present, there is no indication as to when the bill referred to by Mr Sharma is to be presented to Parliament, but hints from the press release were:

• it is likely to be targeted narrowly at certain industries like hospitality and retail whose premises have been closed and where alternative working arrangements are not viable;
• the tenant will have to show that the only or main reason it cannot pay its rent is due to the COVID-19 crisis; and
• existing petitions may well be "avoided" (i.e. rendered of no effect, at least for a period of time), rather than dismissed altogether.

Retailers and hospitality businesses will be watching with interest.

Need help?

If you are encountering problems with arrears, whether as a landlord or tenant (residential or commercial), speak to Howard Kennedy's Real Estate Disputes Team or Business Recovery and Reconstruction Team.