What happened? Our client, a café business, entered into a contract to take over an existing lease and agreed to pay a significant cash premium for doing so. Before the contract was completed, the coronavirus pandemic hit. The government...
In light of Covid-19 the Government, by Section 82 of the Coronavirus Act 2020 placed a moratorium on landlords of commercial premises forfeiting leases to commercial tenants until 30 June 2020.
Subsequently such landlords served statutory demands on tenants and threatened to issue winding up petitions for unpaid rent. To deal with this situation the Government has made two announcements (the last dated 25 April 2020) that it will in the proposed Corporate Insolvency and Governance Bill place restrictions on Landlords issuing petitions for unpaid rent again until 30 June 2020 and that this may be extended.
Some weeks later and at the time of writing the draft Bill has yet to be published. In the meantime landlords have continued to serve statutory demands and threatened to issue winding up petitions.
Two recent cases have thrown some light on how the Court will approach such matters. Both cases concerned applications for injunctions (emergency orders) to restrain issue of winding up petitions.
Shorts Gardens LLP V London Borough of Camden 2020 - 27 April 2020
The Petitions were for long overdue Non Domestic Rates that had been made the subject of court liability orders. There had been numerous court applications. The Court was referred to the proposed Bill. The Judge refused to make an order restraining issue of winding up petitions for among other reasons his understanding the proposed Bill would only apply to:-
- claims as between retail and commercial landlords and their tenants;
- sums that had become due by reason of Covid-19;
- may be confined to particular economic sectors;
and the debt did not fall into any of these categories.
Travelodge Hotels Limited (THL) v Prime 2020 – 6 May 2020 (unreported as at date of writing)
The petition was by a landlord for unpaid rent due from this well-known tenant in the hospitality sector. The tenant had evidently provided financial information and proposals to make reduced payments to the landlord and other landlords concerning its numerous sites.
The Judge granted the injunction restraining issue of a winding up petition.
The Judge said in this case that whilst the Court normally only acted on the law as it was made, it was virtually certain that the law would be passed by Parliament in the very near future. The Judge was referred to authorities where similar such decisions had been made.
In this case the Judge was satisfied that if a winding up order was made creditors would receive very little. He had been provided with evidence to the effect that if THL’s proposals were rejected it would propose to its creditors a formal Company Voluntary Arrangement (CVA) by which creditors including Landlords would receive some payment. In the Judge’s view at this point the Court’s role was to “hold the ring” and that a CVA was a better forum to consider proposals rather than winding up proceedings.
The application was made at very short notice and the injunction was granted for 14 days only, after which the matter would return to Court.
Both judgments were made by sole judges at first instance. Thus in the THL case it is subject to further argument and in both cases to appeal.
Some conclusions that may be drawn at this point are:-
- Prior to the proposed Corporate Insolvency and Governance Bill being published and made law, it seems commercial tenants may apply to the Court for an injunction to restrain their landlords issuing petitions for unpaid rent by reason of the proposed law;
- One factor that may be looked at is whether the sums have become due by reason of COVID -19 rather than being due before;
- It is not entirely clear which sectors this applies to other than retail and commercial;
- Tenants may wish in addition and it may be safer to do so, be in a position to show that they have had a dialogue with their landlord, provided information and proposals for payment and show that if their proposals are accepted, creditors including landlords will likely be in a better position than on a winding up.