It is clear that there are going to be incredible impacts to businesses and companies of all sizes as a result of the COVID-19 pandemic. No business will be immune to the impact of this health epidemic. Across the globe, governments have responded in various ways to change insolvency laws in an attempt to provide assistance to those businesses affected directly or indirectly by COVID-19. Australia is no different and the Federal and State Governments have responded quickly to the crisis.
Following the Insolvency Service’s announcement that it will produce monthly (as opposed to quarterly) company and individual statistics for England and Wales, to assist the Government and the insolvency sector in monitoring the impact of COVID19, the results for July showed that:
Having successfully obtained a public interest winding-up order in Re PAG Management Services Limited [2015] BCC 720 which operated a business rates avoidance scheme using Members’ Voluntary Liquidations, the Secretary of State for Business, Energy and Industrial Strategy unsuccessfully tackled its successor in the Court of Appeal.
The scheme in this case (Scheme 3) was a variant upon two earlier schemes, Scheme 2 being no longer in operation following the public interest winding-up of PAG Management Services Limited.
On 26 June 2020, the eagerly anticipated Corporate Insolvency and Governance Act 2020 (“CIGA”) came into force. The result is that the changes made to insolvency law will now hinder the ability of landlords to recover unpaid rent from its tenants. We look at how the provisions of CIGA do this and the remaining options available to landlords to recover overdue rent.
What has CIGA changed?
(a) Statutory demands
Real Estate Quarterly
Summer 2020
Contents
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Widespread closures due to the COVID-19 pandemic have generated countless lawsuits across the country over missed rent payments. Defendants in these cases are often commercial tenants with conflicting obligations to pay rent under their leases, while also shuttering their doors in accordance with government stay-at-home orders.
Widespread closures due to the COVID-19 pandemic have generated countless lawsuits across the country over missed rent payments. Defendants in these cases are often commercial tenants with conflicting obligations to pay rent under their leases, while also shuttering their doors in accordance with government stay-at-home orders.
Both commercial landlords and tenants continue to struggle from governmental lockdowns and financial pressures. Recent bankruptcy decisions have added an additional layer of financial distress on commercial landlords by: (i) reducing commercial tenants' rent based on the subject lease's force majeure provision and governmental pandemic orders and (2) ignoring commercial tenants' requirement of timely payment of post-bankruptcy rent and allowing commercial tenants to "pause" payment of rent consistent with the governmental “stay” orders issued because of the COVID-19 pandemic.
Section 82 of the Coronavirus Act 2020 prevents landlords from forfeiting ‘relevant business tenancies’ until 30 June, and possibly longer. Regulations have also been made restricting the use of commercial rent arrears recovery (CRAR) during the same period, and emergency legislation is promised preventing landlords from serving statutory demands and instituting insolvency proceedings. But tenants should think twice before withholding rent and other lease payments, and landlords do not necessarily have to take a passive role.
Landlords are receiving a deluge of requests to provide rent relief to commercial tenants whose operations have either been closed or substantially restricted as a result of state and local governments’ COVID-19 stay-at-home orders and related restrictions. Some tenants are using the threat of a bankruptcy filing as leverage to obtain these concessions. Meanwhile, landlords are facing their own challenges with mortgage lenders and servicers as they try to service real estate loans with limited available cash.