Extension of the COVID restrictions on debt collection
Yesterday, the Government announced that it intends to extend the existing restrictions on the use by creditors on of statutory demands and winding up petitions, the rent-related forfeiture of business tenancies AND – if that weren’t enough frustration for those owed money, the Government also intends to introduce new legislation to force Landlords to waive or agree long term repayment plans with their tenants.
Insolvency restrictions under Schedule 10 of CIGA 2000 are being extended to 30 September 2021. This means that stat demands served on corporate debtors before 1 October 2021 cannot be used as the basis for a winding up petition, even if the debtor was unaffected by the pandemic. Creditors cannot present a winding up petition unless they can show that the debtor was insolvent irrespective of the impact of COVID-19.
The relaxation to the conditions for invoking the new insolvency moratorium had already been extended to the end of September 2021.
Landlords and commercial tenants
The news for landlords is even worse. The restrictions on rent-related forfeiture of business tenancies will be extended to 25 March 2022, next year’s quarter date. “Rent”, of course, includes any sum which a tenant is liable to pay under a business tenancy. This extension is not limited to the hospitality sector, despite the colouring given to this announcement by the Government’s press release. It applies across the board. The restrictions on CRAR are extended by the same period, to the March quarter day 2022. Note, however, that that the minimum arrears required, remains at 6 quarters’ worth of rent, so tenants who have not paid rent from March 2020 to June 2021 may presently be protected from CRAR, but they will have to pay their September 2021 rent and continue to pay rent thereafter in order to retain protection from CRAR.
The Government’s press release flags its intention to introduce new legislation to deal with the enormous backlog of rent arrears. The press release states that rent arrears will be “ringfenced” for businesses impacted by COVID and forced to close during the pandemic. The Government’s announcement suggests that Landlords could be compelled to waive some of the debt and agree to a long-term payment plan and be compelled to submit to binding arbitration in the absence of such agreement.
Many questions arise from this announcement, such as what does “ring fence” mean? What will the scope of “ring fencing” be? Will it apply to action on a personal guarantee? How will the arbitration process work? None of these questions can be answered until we have the detail on this radical innovation.
When will it end?
When CIGA 2000 became effective, a long-stop date of 30 April 2021 was implemented for the COVID restrictions it contained. That long-stop date is now 29 April 2022. The Government’s ministers have often said that we need to learn to live with COVID. There is, in my view, a good argument that learning to live with COVID includes means starting to deal with the financial impact on business now, rather than continuing to push the problem down the line. As a litigator, well aware of the existing court backlog, my concern is that delaying the date for enforcement will simply build up an even bigger backlog of cases that the courts will have no hope of dealing with in anything like a reasonable time frame. It is of course a difficult balance to strike, and business owners will be grateful for the extended breathing space. But debts don’t disappear, (other than rent arrears, which it seems might be part-waived by law). The nettle has to be grasped.
If you have any questions regarding the extension of COVID restrictions on debt collection or any other queries please contact our team.