The government has extended what is effectively a temporary ban on the use of statutory demands or winding up petitions in the context of commercial property leases where tenants cannot afford to pay their rent due to Covid-19.
Having introduced a moratorium on those two legal mechanisms last year through the Corporate Insolvency and Governance Act, the government has decided to provide the same opportunity for “breathing space” for commercial tenants through until at least March 31 2021.
The moratorium was introduced with the intention of helping otherwise viable businesses avoid entering insolvency while the Covid-19 pandemic unfolded and that aim is still guiding government policy with most of the UK enduring another coronavirus-induced lockdown.
As a result, commercial tenants currently cannot be threatened with eviction or winding up petitions if they cannot afford to make rental payments for reasons causally related to the pandemic situation.
In practice, winding up petitions can still be presented to debtors but they will be voided by the courts if it can be proven that the inability of a tenant to pay their rent can be explained by the Covid-19 crisis.
The government has made clear that businesses that can still afford to pay their rent on commercial properties should carry on doing so as normal.
However, the relevant legislation means that landlords will need to provide convincing evidence if they hope to successfully pursue their tenants through the courts on the basis that they could afford to pay their rent but are not doing so for reasons unrelated to the pandemic.
Creditors are also being warned that their pursuit of commercial tenants through statutory demands or winding up petitions could take considerably longer and prove more expensive than would normally be the case outside of the pandemic.
Speaking after the scope of the Corporate Insolvency and Governance Act was extended into 2021, business minister Lord Callanan said the government’s aim was to give businesses greater protection from their creditors during what are exceptionally testing times for most companies in the UK.
“It is vital that we continue to deliver certainty to businesses through this challenging time, which is why we are now extending these important and necessary measures to protect companies from insolvency,” he said.
“Through this measure, we want to ensure businesses are able to not only come through this testing period, but also to plan, adapt and build back better.”
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