Government imposes moratorium on statutory demands and winding up petitions

This comes on the back of the Government imposing a similar moratorium on landlords forfeiting commercial leases which had led to some landlords using statutory demands and winding up petitions as an enforcement tactic to put pressure on their tenants to pay the rent.  It is hoped the latest measures will encourage those landlords to open a dialogue with their tenants to try and agree a way forward that is acceptable to both parties. 

The legislation is introduced through the Corporate Insolvency and Governance Bill (which was published on 20 May 2020). Its key features are:

• It provides for a ban on the use of statutory demands served from 1 March 2020 and winding up petitions presented between 27 April against tenant companies unable to pay amounts owed due to Covid-19. These measures were due to end on 31 December 2020, however, in line with the moratorium on commercial lease forfeiture, they have been extended until 31 March 2021.

• The presentation of a winding up petition itself is not banned, but the petition will need to be reviewed by the court, and if the court is satisfied that the inability of the tenant to pay the rent relates to Covid-19, the petition will be voided.  The burden of proof will lie with the landlord who will need to be able to show that the tenant is largely unaffected by the current crisis and/or that it has sufficient funds/assets to make the payment which is due. In light of the additional evidential hurdle, landlords will also need to bear in mind the procedure is likely to be more drawn out and expensive than it currently is.  

• The proposals do not appear to affect the position of guarantors. This means that a landlord is still entitled to serve a statutory demand or present a winding up petition against the tenant’s guarantor. 

In order to provide some protection for landlords, the government has called on tenants to “pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords.” The moratorium is therefore unlikely to offer protection to those tenants that remain in a strong financial position and are able to pay the rent.  

The majority of landlords will nevertheless now find themselves with fewer options at their disposal to require payment of rents by their tenants whilst the moratorium remains in place. Those landlords who are unable to come to an accommodation with their tenant will be obliged to consider those remedies that, for the being, remain available to them, including claiming against any guarantor, drawing down on any rent deposit or other security, or issuing a debt claim. 

If you are a tenant contemplating your next steps or a landlord faced with tenants asking about their options, feel free to contact our team at Lewis Silkin for some advice on next steps.