In this bulletin, we focus on landlord and tenant relations, particularly in light of the recent decisions in the New Look, Regis and Virgin Active cases involving challenges by landlords to restructuring processes. Cathryn Butler and Amy Gallimore consider unfair prejudice and just and equitable principles in CVAs and restructuring plans; Katie Farmer reflects on challenges to CVAs and common pitfalls; and Warren Reid, partner in our expert Property Litigation team gives an update for tenants and IPs working with tenant occupiers - including some essential issues to be considered with any existing or proposed payment plan for rent arrears. Separately, Karolina Lewandowska provides an update on the latest Government extensions to business support measures and the next round of the New Look CVA challenge.
Unfair prejudice and the ‘No worse off’ test – CVAs and Restructuring plans compared
After a flurry of recent decisions arising from clashes between three distressed high profile companies and their landlords, we reflect on the areas of dispute and the similar but distinct tests considered by the court in CVAs and the new restructuring plans respectively.
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Rent Arrears - The moratorium, rental deferments v concessions, and the need for payment plans
The current moratorium on statutory demands and winding up petitions originally due to expire on 30 June 2021 has been extended to 30 September 2021. Following consultation, the Government announced on 16 June that the moratorium on forfeiture would be extended to 25 March 2022. The restriction on the use of the Commercial Rent Arrears Recovery (CRAR) process by landlords will also be extended, however the total number of days’ outstanding rent required for CRAR will remain at 554 days.
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Challenges to CVAs by landlord creditors
Company voluntary arrangements (CVAs) remain popular as a restructuring tool, particularly in the retail and hospitality sectors. Businesses such as clothing retailers and high street restaurants have successfully used CVAs to close non-performing outlets and compromise the historic debt and ongoing liabilities relating to those premises. Having done so, the restructured business is able to move forward and concentrate its efforts on the retained, profitable sites.
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The temporary restriction on winding-up petitions extended by a further 3 months
The provisions restricting service of statutory demands and the presentation of winding-up petitions introduced by the Corporate Insolvency & Governance Act 2020 have been extended until 30 September 2021. These measures were introduced to protect businesses affected by the coronavirus pandemic from aggressive creditors, who continue to have to meet the "coronavirus test" in order to successfully present a petition. It will be interesting to see whether there will be a further extension in due course in line with the extensions of restrictions on remedies for non-payment of commercial rent.
Permission to appeal granted to landlord creditors of New Look Retailers Ltd
The coronavirus pandemic continues to have a severe impact on the retail sector with many businesses forced to explore restructuring and/or insolvency options. One of the pandemic victims was New Look Retailers Ltd (New Look), which entered into a company voluntary arrangement (CVA) in Autumn 2020. The CVA was challenged by New Looks' landlord creditors on the following grounds: (1) jurisdiction, (2) material irregularity and (3) unfair prejudice. Mr Justice Zacaroli dismissed the challenge on all grounds but did grant permission to appeal his decision. We await further updates on this, which, if successful, could be a significant development for landlords, whose claims are often compromised in restructuring processes.
Ban on temporary restrictions on remedies for non-payment of commercial rent extended by 9 months
The use of the usual remedies for non-payment of rent available to commercial landlords, including Commercial Rent Arrears Recovery (CRAR) and forfeiture of leases, remains restricted as part of the Government’s response to the coronavirus pandemic in order to protect commercial tenants and help to preserve businesses where possible. These emergency measures, which were due to expire on 30 June 2021, have been extended again until 25 March 2022. In addition, the Government announced its intention to introduce new legislation to ringfence rent areas accrued during the periods when the business was closed due to the pandemic and a binding arbitration process for tenants and landlords who are unable to reach agreement.