COVID-19 in the UK: restrictions on the use of statutory demands, winding up petitions, and CRAR

Building on measures already introduced in the Coronavirus Act – such as the moratorium on lease termination for non-payment of rent until 30 June 2020 – the Government announced that further emergency measures will be introduced. 

Statutory demands and winding up petitions issued to commercial tenants to be temporarily voided

The forthcoming Corporate Insolvency and Governance Bill will include restrictions on the use of statutory demands and winding up petitions to recover sums owed by tenants. 

There will be a temporary ban on the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April 2020 through to 30 June 2020, where a company cannot pay its bills due to COVID-19. Under these measures, when winding up petitions claim that a company is unable to pay its debts, the court must first review the petitions to determine why the company is unable to pay and will not permit petitions to be presented, or winding up orders to be made, when the company's inability to pay is the result of COVID-19.

As detail in the announcement is limited, it is unclear whether the restrictions will only apply to arrears of rent or will also apply to other payment obligations. The announcement also seems to suggest that such restrictions would only affect a landlord's ability to wind up a company and will not prevent a landlord from placing a company into administration. 

Given the court is required to consider whether the debtor's inability to pay is due to COVID-19, these measures will undoubtedly result in additional court time. The court has already indicated in a recent judgment that it will require credible evidence on this issue and will not simply accept sweeping statements.

The use of CRAR to be restricted 

The Government is also devising legislation to provide tenants with more breathing space to pay rent by preventing landlords from using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent. At present, landlords must be owed just 7 days of rent before they can exercise CRAR rights.

That said, for tenants that fell into arrears on the March quarter day, the 90-day period will expire just before the June quarter day on 24 June 2020. Coupled with the expiry of the forfeiture moratorium and the restrictions on insolvency action, which are currently expected to end on 30 June 2020, tenants remaining in arrears at the end of June 2020 will be vulnerable. 

The UK Government also announced a number of new insolvency measures which will assist businesses which are suffering financially because of COVID-19 restrictions and will help support the directors of those businesses.