Temporary restrictions on winding-up petitions and business evictions extended again

On 16 June, the government announced that:

• the temporary restrictions on statutory demands and winding up petitions will be extended from 30 June 2021 to 30 September 2021;
• the temporary suspension of wrongful trading and other temporary minor relaxations will not be extended;
• the temporary restrictions on business evictions and landlords using Commercial Rent Arrears Recovery will be extended from 30 June 2021 to 25 March 2022 (albeit it's unclear at this stage whether landlords will be able to take action against certain tenants for arrears accruing outside the lockdown period – see below); and
• it intends to pass legislation introducing a new binding arbitration scheme to deal with the outstanding rent arrears that have built up when a business has had to remain closed during the pandemic. The announcement provides that landlords will be expected "to make allowances for the ring-fenced rent arrears from…specific periods of closure due to the pandemic, and share the financial impact with their tenants". Further details of the arbitration scheme are awaited.

To seek to appease landlords, the message from the government is that businesses who are able to pay rent should do so as soon as they are given the green light to open, echoing the sentiment of the voluntary code. However, it is unclear whether this will be built into the extension of the forfeiture restrictions. If not, there will be little landlords can do to enforce payment of rent where businesses are open and trading. While debt claims are still available, with recent judgments finding in favour of landlords, these are taking a long time and are getting clogged up in the courts. This announcement will come as a blow to landlords, which are estimated by the British Retail Consortium to be carrying £5bn of rent arrears.

Comment

We understand the need to protect tenants' businesses that are heavily impacted by Covid and require more time to recover. However, as well as protecting these businesses, the extensions will allow a growing number of unviable businesses to carry on operating and building up debt at the expense of their creditors (including landlords), instead of undergoing an insolvency or restructuring process. Insolvency levels have been artificially suppressed by these measures and other Government support measures, creating a log-jam in the economy. These further extensions do nothing to help solve this issue and it is doubtful whether the resumption of wrongful trading liability will do much to alleviate the problem either.

There's also a clear mismatch between the extension of the business eviction ban and the winding-up restrictions. Since the winding-up restrictions were originally introduced to support the landlord measures, it seems surprising that the two are not running together. It remains to be seen what will happen after 30 September 2021.