Summary and implications

Whilst the property market remains challenging, the possibility of landlords entering into administration increases and many redevelopment schemes have been put on hold.

Making a will is regarded by most individuals as a necessary irritant ranking in popularity somewhere below a visit to the dentist or doctor. Following the unprecedented instability in the global financial markets since 2007, “systemic” risk (posed by the potential failure of large or complex cross-border financial institutions) was identified by regulators and legislators as one of the key areas requiring better supervision, in order to prevent a similar crisis in the future.

On the 12 November 2009, the OFT launched a market study into corporate insolvency. The investigation was prompted by concerns raised with the Government and the Insolvency Service, and also following a recent World Bank report which showed that the costs of closing a business in the UK are higher than in other countries.

Company Administrations in the UK are still on the rise. An administration is the nearest UK equivalent of a US Chapter 11 procedure or an Insolvenzplan in Germany. You may not have heard the term ‘pre-packs’ but if you become involved with any struggling business in the UK, be it your own or that of a customer, supplier or a tenant, you should know what you are up against.

Scottish Lion Insurance Company is attempting for the second time to promote a solvent scheme of arrangement to bring its insurance business to an early close. The first attempt was abandoned in 2005 when the company was ordered by the Scottish Court to disclose to one objecting creditor a list of all its scheme creditors, whereupon the proposed scheme was withdrawn.

1. Can I lock the tenant out of the property until they pay?

No. If a tenant has been placed in administration then there will be a moratorium in place. This gives a company some breathing space. Rights against the company, such as forfeiture or conducting legal proceedings, can only be pursued with either the consent of the administrator or a court order. As noted last week, changing the locks is likely to forfeit the lease. Unless you intend to forfeit and obtain the necessary permission to do so, you should not change the locks.  

In the last edition of Real Estate Update, we considered the position of a landlord wishing to keep the lease of premises to a company in administration ongoing and in what circumstances he will receive the full rent (ie 100 pence in the pound). If, however, the tenant is in administration and the landlord would like to bring the lease to an end, he would only be entitled to forfeit the lease if the administrator consents or the court grants an order giving him permission to do so.1

Today, the U.K. Treasury and Northern Rock plc separatelyannounced that the restructuring of Northern Rock will take place on January 1, 2010 (Transfer Date).

The Third Parties (Rights Against Insurers) Bill proposes that claimants should be able to sue the insolvent defendant’s insurer directly without having to sue the wrongdoer first. This changes the current legislation, passed in 1930, that requires claimants to establish the wrongdoer’s liability before bringing a separate claim against their insurer.  

The statutory moratorium may not protect a company in administration against proceedings continuing under the Landlord and Tenant Act 1954

Property professionals will no doubt be familiar with the statutory moratorium that comes into effect immediately upon an administration order being made in respect of a company. The main effect of this is that no legal process may be started or continued against the company or property of the company except with the consent of the administrator or with the permission of the court.

The background