For RSLs who are routinely contracting with housebuilders for golden brick delivery of affordable housing across multiple phases, we discuss the four key actions that can help if the housebuilder becomes insolvent.

1. Pre-Insolvency – Financial Distress Provisions and Due Diligence

The first quarter of the year can often be a pinch point for tenants as they assess Christmas trading and scrutinise financial results. Where profits have failed to meet expectations then a tenant may require to consider formal insolvency proceedings but how does this affect the landlord? Here we consider some of the key questions for a landlord in Scotland facing tenant insolvency.

What is the status of the tenant?

The number of company insolvencies in 2023 increased by over a third compared to 2022. The hospitality sector was particularly badly affected, with 53% more insolvencies than in 2022.

It appears that 2024 will be similarly challenging for companies in the hospitality sector. The Restaurant Association of Ireland (RAI) has set out the main challenges faced by the industry, including increased energy and labour costs, and the VAT rate reverting to 13.5% after having been reduced to 9% during the covid-19 pandemic.

2023 was a year where we saw buyers and sellers of commercial real estate assets not necessarily always aligned on pricing against a backdrop of lending headwinds. As the year drew to a close, visible signs of distress were reported to be emerging in certain corners of the real estate sector which may well bring fruitful opportunities in 2024 for property investors looking to acquire new assets via distressed or enforced sales. But what is a "distressed" property sale and what are the key considerations for buyers looking to acquire these types of assets?

The High Court has reaffirmed the test to be applied in considering an application to dismiss a bankruptcy summons grounded on a judgment.

The bankruptcy process in Ireland involves multiple steps and the debtor can seek to bring it to a halt at each step. Debtors often seek to rerun effectively the same arguments at each step, ignoring previous findings by the courts. One such step is an application to dismiss a bankruptcy summons.

The Irish High Court has determined that the liquidation of an Irish aircraft leasing company, which was a 100% subsidiary of a Russian company expressly subject to EU sanctions, rebuts the presumption that the company was controlled by the Russian parent for the purpose of EU sanctions.

This enables the liquidators to deal with the assets without costly and time-consuming derogation applications.

Background

Irish company law provides that if a charge granted by a company is not registered in the Companies Registration Office (CRO) within 21 days of its creation, it is void against a liquidator and any creditor of the company. There is a duty imposed on a company which grants a charge to register the charge in the CRO but the creditor taking the charge can also do so.

Diamond Rock Developments Ltd (the Company) granted a mortgage over a property. That mortgage was registered in the Land Registry but was not registered in the CRO.

If you supply goods, the simplest step that you can take to reduce your exposure to a customer’s insolvency is to use effective retention of title (RoT).

However not all RoT clauses are effective and we see many RoT claims rejected in insolvency.

By default, once you sell goods on credit:

• the goods belong to the customer; and
• the customer owes you the purchase price.

This means that if an insolvency practitioner (IP) is appointed to the customer:

Corporate insolvency numbers continued to appear artificially low in 2022. The expectation is that they will rise once businesses need to deal with the aftermath of Government pandemic supports and, in particular, start to pay warehoused taxes.

The High Court recently rescinded an order adjudicating a debtor bankrupt in Ireland because the debtor failed to disclose material facts to the Court in his application for bankruptcy. In doing so, the Court established a duty of full disclosure that debtors must comply with when seeking to be adjudicated bankrupt in Ireland.

This decision will be welcomed by creditors where there is a concern that a debtor may seek to relocate from other EU member states to Ireland to avail of Ireland’s comparatively benign bankruptcy regime.

Background