The end of insolvency restrictions and the new Commercial Rent (Coronavirus) Act 2022
Following our article regarding the Commercial Rent (Coronavirus) Bill, the legislation received Royal Assent on 24 March 2022 and has now been enacted as The Commercial Rent (Coronavirus) Act 2022 (CRCA).
Now that CRCA is in force Landlords should be aware of the practical impact the legislation will have on rent recovery. Our real estate team has set out in detail the provisions of CRCA and in particular the various issues landlords should be alive to going forward.
Landlords, and creditors generally, should also be aware of recent changes to the restrictions on presenting winding-up petitions and enforcing debts imposed by the legislation passed in the wake of the coronavirus pandemic.
Restrictions (almost) all lifted
From 31 March 2022 the wide ranging restrictions which have been in place since March 2020 on the options available to creditors to pursue corporate debts, including landlords’ ability to recover rent arrears from commercial tenants, will come to an end. This includes the restrictions on serving statutory demands and presenting winding-up petitions against corporate debtors. In particular, this means the minimum debt threshold for presenting a winding-up petition has reverted back to £750, and the £10,000 minimum debt that has been in place for a number since 1 October 2021 no longer applies.
Importantly for landlords, there are no longer any statutory restrictions on presenting winding-up petitions in relation to ‘non-protected rent debts’ (non-PRDs). For the purposes of CRCA, ‘protected rent debts’ (PRDs) include rent arrears that arose between 21 March 2020 and 18 July 2021 in England, and CRCA allows disputes regarding PRDs to be referred to arbitration, by either the landlord or the tenant.
It should however be noted that despite the general restrictions coming to an end, CRCA introduces a number of very limited prohibitions on insolvency proceedings (both winding-up petitions and, for these purposes, bankruptcy petitions as well) in relation to PRDs, which will continue until 24 September 2022 or, where a binding arbitration process has been commenced, until the arbitration process has been concluded (the so called ‘moratorium period’).
Under CRCA there are restrictions in relation to:
- The presentation of winding-up petitions against corporate tenants (or their guarantor) by a landlord until 24 September 2022 or until a binding arbitration process has concluded, in relation to a PRD. However, if the landlord is also owed a debt which is not a PRD, they may still be able to pursue rent recovery by way of a winding-up petition for those non-PRDs.
- The presentation of bankruptcy petitions in respect of any PRD based on a statutory demand served, or judgment entered, between the period 10 November 2021 and the end of the moratorium period, effectively extending the statutory protection available to individual business tenants. This does not restrict the use of bankruptcy petitions in relation to non-PDR’s.
- Bankruptcy orders made on or after 10 November 2021 but before CRCA came into force may be declared to be void. A tenants’ use of the arbitration scheme under CRCA, in particular, if a tenant has already compromised any PRD under a company voluntary arrangement (CVA), an individual voluntary arrangement (IVA), scheme of arrangement or restructuring plan, those PRDs cannot be referred to arbitration.
What does this mean?
After a frustrating few years landlords will now be able to exercise the same remedies for non-payment of rent that were available to them pre-pandemic in circumstances where the rent debts are non-PRDs. The same applies to creditors owed debts of less than £10,000, who will now find they are free to enforce their debts, largely as they used to pre-pandemic.
Landlords will however have to bear in mind the limited restrictions on pursuing PRDs. Before commencing proceedings landlords should consider if any of the restrictions detailed above might be applicable, and if referral to an arbitration process might be the more appropriate course of action in the circumstances.