Moratorium on winding up orders extended to September 2021 – and what of arrears?

Hogan Lovells

Hogan Lovells

The restrictions on filing statutory demands and winding up petitions has been extended (again) until the end of September 2021. At the same time, the moratorium on landlords evicting commercial tenants has been extended to March 2022. Both are longer than expected. Perhaps more interestingly, the announcement includes reference to the imposition of an arbitration mechanic for arrears – a step from the Government that will provide another route to impose a compromise on arrears.

It was announced this week that there will be a three month extension (from 30 June 2021 until 30 September 2021) on the blanket prohibition on statutory demands and the restriction on winding up petitions based on a company’s inability to pay its debts (unless the creditor has reasonable grounds for believing that either COVID-19 has not had a financial effect on the company or that the circumstances forming the basis of the winding up petition would have occurred even if COVID-19 had not had a financial effect on the company). This extension follows previous extensions of the prohibitions on filing statutory demands and winding up petitions. Click here for more information on previous extensions.

Following responses to the call for evidence on commercial rents and COVID-19 issued by the Government on 6 April, it was also announced that the ban on commercial evictions will be extended from the previous expiry date of 30 June 2021 to 25 March 2022 and that the Government is preparing new legislation which will compel landlords to enter into negotiations with their tenants in respect of “ring-fenced” rent arrears, being arrears which accrued during periods when tenants were unable to trade due to Government restrictions. Although tenants who can pay are expected to pay (a message repeated on many occasions by the Government throughout the pandemic), landlords and tenants must enter into negotiations on how to deal with these ring-fenced arrears, with landlords being expected to “share the financial impact with their tenants”. The extension to the moratorium on commercial evictions is to allow time for these negotiations to take place. Any failure by the landlord and its tenant to reach an agreement in respect of such ring-fenced rent arrears will lead to the parties having to enter into a binding arbitration process. However, the announcement is somewhat short on detail and we will have to wait for the draft legislation to see exactly how it is intended to operate, including the  powers to be given to the arbitrators and the terms of what they can impose.

This is potentially a key development for corporates with material real estate exposure. Previous COVID19 support has had the effect of allowing many corporates to defer payment of their rents, which have continued to accrue during the pandemic. This community has been eyeing with interest recent leading developments in Restructuring Plans and Company Voluntary Arrangements which have redefined the parameters of permissible restructuring of those liabilities (see a recording from a recent webinar on this topic here). The three month extension on winding up petitions might postpone the widely anticipated rush to use these mechanisms over the next few months, but the announcement of the arbitration route may now offer a third option for corporates in situations where no fully consensual deal has been achieved.

In addition, the Government also announced today that protection against the Commercial Rent Arrears Recovery (CRAR) process by landlords will be extended from 30 June 2021 to 25 March 2022. The total number of days’ outstanding rent required for CRAR will remain at 544 days. . Click here for more information on this extension.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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