With commentators predicting that the real impact of last summer’s credit crunch on corporate liquidations has yet to be felt, how can landlords and tenants of commercial properties prepare for a potential rise in the number of corporate insolvencies?

LANDLORDS’ REMEDIES - THINK OUTSIDE THE BOX

The landlord of a commercial property faced with an insolvent tenant will usually have two concerns:

The lengthening of the restoration period for dormant companies may make a solvent liquidation an attractive option for some companies. James Stonebridge examines the impact of changes introduced under the Companies Act 2006.

The judgment of the Commercial Court in WASA and AGF v Lexington shows that a “follow settlements” clause in a reinsurance contract will not obviate the need for the reinsured to demonstrate that an inwards settlement falls within the terms and conditions of its outwards reinsurance. Partner Michael Mendelowitz reviews the judgment.

The Polish metal tools manufacturer, Bison Bial (Bison), will be able to receive state aid amounting to €8.2m in order to enable the company to carry out a restructuring programme to improve the firm’s economic viability. After Bison entered into financial difficulties, Poland notified the European Commission that it wanted to provide aid to the company. The Commission decided that such aid was compatible with EU state aid rules, provided that the investment programme is fully implemented and the company sells one of its production divisions by the end of 2009.

On the 1 October 2007 new Practice Directions to the Civil Procedure came into force which will affect applications to court under the Companies Acts 1985 and 2006. In particular the rules in relation to schemes of arrangement under section 425 Companies Act 1985 are being amended to incorporate provisions in the Companies Act 2006 coming into force on 1 October 2007.

The 4th session of the committee of governmental experts on Intermediated Securities met in May 2007 to continue negotiation of the draft Convention. The Convention deals primarily with the rights of account holders in relation to intermediated securities - securities held through financial intermediaries.

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has published an Issues Paper on 'Risk Management and Other Corporate Issues'. The paper is not a formal consultation. Instead, it is part of CEIOPS' preparation for future work under the Solvency II project.

Termination, rights to withhold payment and withholding notices under the Housing Grants, Construction and Regeneration Act 1996 Under the JCT suite of contracts, an employer is entitled to terminate the contractor’s employment where the contractor has become insolvent (including the appointment of administrative receivers in relation to the contractor). If an employer exercises this right of termination, the JCT provisions set out the resulting financial consequences.

The Powerhouse CVA, which sought to strip away guarantees provided by the parent company to landlords of Powerhouse, has been struck down as unfairly prejudicial by the High Court. However, certain aspects of the judgement remain unclear and could be subject to future appeal…

BACKGROUND TO THE POWERHOUSE CVA

Powerhouse (an electrical retailer) proposed a CVA on 1 February 2006 with the intention of closing 35 of its stores (the Closed Premises).

On 27 August 2006, the PRC National People’s Congress passed a new Enterprise Insolvency Law (the “Law”) after more than a decade’s preparation and debate. The Law, which will become effective on 1 June 2007, introduces a formal insolvency process applying to a wide range of legal entities. The Law only contains general principles which in practice are unlikely to provide sufficient protection to creditors’ interests.

Scope of application