Monthly Archives: July 2020

The Covid-19 pandemic has created upheaval for almost all businesses and individuals. Many landlords and tenants are experiencing financial hardship. To protect commercial and residential tenants from losing their premises during the pandemic, the government has brought in various emergency measures. Landlords and tenants have also worked together to find a way through the challenges presented by this unprecedented situation.

Here are the key areas where law and practice has changed to date as a result of the pandemic.

Commercial landlords: temporary changes of law

• Forfeiture moratorium: the government has placed a moratorium on forfeiture proceedings for commercial leases. The moratorium initially lasted until 30 June 2020 but has since been extended to 30 September.
• CRAR: the Commercial Rent Arrears Recovery regime (CRAR) has been amended. In normal times, CRAR rights can be exercised when there are 7 days’ worth of rent arrears. The government amended this in April to require 90 days’ worth of rent arrears. From 24 June, 189 days’ rent must be outstanding, i.e. at least two quarters’ worth of rent.
• Insolvency law changes: the Corporate Insolvency and Governance Act became law on 26 June. It restricts landlords’ ability to issue serve statutory demands and issue winding-up petitions as a means of recovering rent arrears. These restrictions are expected to apply until 30 September.

Commercial landlords: practice and policy changes

• Mortgage payment holidays: mortgage lenders have been offering three-month payment holidays to buy-to-let landlords where this is needed due to Coronavirus-related hardship. The scheme has now been extended to 31 October, meaning that new applications for a payment holiday can be made until this date and lenders may agree to an extension of an existing payment holiday.
• Rent concessions: rent continues to be payable by tenants, even if they are unable to trade from their premises, but many landlords have been adopting a pragmatic approach and instituting temporary measures such as a rent reduction or rent suspension.
• Government workplace guidance: The government’s Guidance on working safely during coronavirus will be relevant to landlords, particularly if they are responsible for shared parts of a building or estate. The guidance has been updated a number of times as the lockdown has eased, to reflect the new rules and cover additional workplaces. Landlords should insist that tenants are implementing the guidance in their workplaces.
• New Code of Practice: the “Code of Practice for commercial property relationships during the COVID-19 pandemic” has been agreed between the government and many significant bodies in the property sector, including the British Property Federation and the British Retail Consortium. It is a voluntary code which aims to encourage landlords and tenants to work together to keep viable businesses operating during the pandemic. It applies until 24 June 2021.

Residential landlords: temporary changes of law

• All ongoing residential possession proceedings have been suspended by the courts. Initially the suspension was for 90 days from 27 March. It now applies until 23 August.
• Until 30 September 2020, the minimum notice period to be given when seeking possession of premises from residential tenants is increased from two months to three months.

Residential landlords: practice and policy changes

• The government has produced Covid-19 Guidance for Landlords and Tenants covering rent, possession proceedings, access to property for repairs and health and safety.

Overview

The Corporate Insolvency and Governance Act (CIG) received Royal Assent on 26 June 2020. The CIG is expected to improve the ability of companies to be efficiently restructured, reinvigorate UK rescue culture, and support the UK’s economic recovery.

It also includes temporary corporate governance changes to shareholder meetings, AGMs, and Companies House filing deadlines.

The following is a brief summary of the main provisions. These are specialist areas of the law and will require specialist advice.

Restructuring Plan

The CIG introduces a new flexible restructuring plan, similar to the existing scheme of arrangement. Under the plan, a company that has encountered, or is likely to encounter, financial difficulties that are affecting, or will or may affect, its ability to carry on its business as a going concern has the ability to enter into a compromise or arrangement with its creditors/members in order to restructure its debts.

It will be inserted into the Companies Act 2006 with the aim of achieving a compromise with dissenting secured creditors by the addition of a “class cram down”. This particular feature draws inspiration from US Chapter 11 proceedings.

The aim is to make it easier to pass a restructuring plan by dividing creditors/members into classes based on the similarity of their rights and each class/member given the opportunity to vote on the plan. The new restructuring plan enables a court to sanction a plan that binds dissenting classes of creditors/members. A plan will be passed if it is approved by 75% in value of the creditors/members or class of creditors/members and importantly, unlike a scheme of arrangement, there is no requirement for a majority (over 50%) in number of each class to vote in favour.

Moratorium

The CIG introduces a new, stand-alone moratorium procedure designed to provide breathing space to companies in financial distress. The moratorium provides a payment holiday for certain types of pre- and post-moratorium debts without requiring leave of the court and will prevent creditors from taking enforcement action against a company. Companies will qualify if they are, or are likely to become, unable to pay their debts when they fall due. A company does not have to be solvent to be eligible.

A fundamental requirement of the process is that it must be likely to result in the rescue of the company as a going concern. It is a director-driven process, and the directors retain full management and control of the company throughout. The regime requires the appointment of a monitor, who must be a qualified insolvency practitioner, and whose role it is to oversee the company’s affairs with a view as to whether it remains likely that the moratorium will result in the rescue of the company as a going concern.

Ipso Facto (Termination) Clauses

Contracts for the supply of goods or services contain clauses which allow a supplier to terminate or threaten to terminate or vary the supply when the counterparty to the contract enters into an insolvency or restructuring process. This is known as an ipso facto clause. The CIG contains a provision, to be inserted into the Insolvency Act 1986, to prohibit suppliers from relying on such clauses. Therefore, subject to certain exceptions, suppliers will be required to continue to supply goods or services to a company in a restructuring or insolvency process. The aim is to protect a company’s supply chain and enable the company to continue to trade.

Temporary suspension of winding up petitions, statutory demands and wrongful trading

The Government announced on 28 March 2020, plans to amend the wrongful trading provisions to remove the potential liability for directors in situations where a company’s financial position has worsened during the COVID-19 pandemic. This was an attempt to prevent directors from placing a company into administration prematurely as a result of concern for their exposure to personal liability for wrongful trading.

The relevant period is between 1 March 2020 and one month after the CIG is enacted.

Likewise, it was announced in April 2020 that statutory demands and winding up petitions would be temporarily banned where a debtor company cannot pay its debts as a result of the COVID-19 pandemic. The hope is that this process will enable companies in financial distress to enter into compromises/arrangements with their creditors without the need for formal insolvency processes to be commenced.

Under the CIG, all statutory demands will be void if served on a company during the period between 1 March 2020 and one month after the CIG comes into force.

Flexibility for Holding Shareholder’s Meetings and AGMs

The rules around shareholder meetings will be temporarily relaxed. This period of relaxation began on 26 March 2020 and ends on 30 September 2020, subject to a possible extension until April 2021.

During this period, overriding anything in the company’s constitution, the provisions allow for general meetings to be held on a virtual basis and for votes to be cast by electronic means, and that quorum requirements can be met without any members being together at the same place.

Companies required to hold their AGMs during the period from March to September 2020, can hold their meeting at any time before 30 September 2020 (again with a possible extension).

Temporary Extension of Companies House Filings

Temporary easements will be introduced regarding filing requirements. They include extensions to deadlines for:

• confirmation statements;
• accounts (Companies House has already made arrangements for companies to apply for a three-month extension to their accounts filing deadline if they are unable to meet the deadline owing to COVID-19);
• registrations of charges (mortgage); and
• event-driven filings, such as changes to company directors, people with significant control, or a change of registered office.

Where the existing filing period is 21 days or less, the extended filing period will not exceed 42 days. Where the existing filing period is between three and nine months, the extended filing period will not exceed 12 months.

This is a very brief overview of the CIG and more information can be found here.