Proposed coronavirus legislation fails to stop winding up petition.


There has been considerable coverage of the plight of the high street since the outbreak of Covid-19. Forced to close to prevent the spread of the virus, these commercial premises have no way of getting the footfall and its subsequent income, but still have the legal obligation to pay the rent and business rates. The Government recognised the issue and announced a three-month moratorium on evictions of tenants of commercial properties who were unable to pay their rent because of the coronavirus.

 

Whilst this was of comfort to the commercial tenants, Landlords were however also feeling the strain and many found alternative ways of recovering their overdue rents, such as winding up petitions and statutory demands.

 

In light of this the Government announced on the 23 April 2020 that they will be bringing in further measures to protect commercial tenants from these aggressive debt recovery methods. Alok Sharma, the business secretary, has acknowledged the strain commercial landlords find themselves under but has “urged them to show forbearance to their tenants” and to take advantage of the newly expanded Coronavirus Business Interruption Loan Scheme.

 

The government’s new emergency measures relating to the use of statutory demands and the presentation of winding up petitions will temporarily ban the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to 30 June, where a company cannot pay its bills due to coronavirus.  At present no draft legislation has been published and as such the law remains unchanged. With that in mind how then will the current applications before the Court be dealt with?

 

Judgment in the case of Saint Benedict’s Land Trust Limited and Shorts Gardens LLB v London Borough of Camden Council and Preston City Council [2020] EWHC 1001 (Ch)was handed down yesterday (27 April 2020) and dealt with an application to restrain a winding up petition, specifically citing the proposed Covid-19 legislation as one of the grounds.

 

Snowden J confirmed that his decision would be made on the law as it stands not the prospective legislation. He further added that the government’s legislation was envisaged to restrict statutory demands and winding up petitions that concerned debts that were unable to be paid because of the coronavirus, not debts that accrued before the virus, or were entirely distinct from the virus (in this case liability orders for non-domestic rates and costs orders).

 

The message to take away is that the coronavirus must be real reason behind any debt, failing which the aggressive methods of debt collection will remain to be available.

 

As a cautionary note, winding up is a great method of aggressive debt recovery until it doesn’t work. Then you have just wasted the court fee and deposit of £1680 (which you will not recover), you have lost any opportunity of cash and eventually the rates liability will fall to you on an empty property (as it is unlikely you will re-let the property quickly as we come out of lockdown with all the various problems we face).

 

Is a negotiated settlement with a small sum of cash, hoping that the tenant will recover and pay off the arrears, a less risky strategy?

 

The parties need to work collaboratively - mediation offers that independent third party who can get to the real issues and help facilitate a reasonable payment agreement that will work for all involved.

 

A copy of the judgment can be found here: https://www.bailii.org/ew/cases/EWHC/Ch/2020/1001.html

 

 

Victoria Greenwood