Coronavirus measures to protect the UK high street clarified

Out-Law Legal Update | 06 May 2020 | 12:32 pm | 3 min. read

Government plans to protect against "aggressive debt recovery" have been explored by the High Court in England. The court dismissed applications brought by Saint Benedict's Land Trust Ltd and Shorts Gardens LLP to prevent the presentation of winding-up petitions over unpaid debts. The debts in question related to unpaid national non-domestic rates, which were owed long before the outbreak of the Covid-19 pandemic. While the new government measures have not yet been enshrined in law, the ruling may be a good indication of who the measures are designed to protect and how they should and should not be applied in practice.
  • The government is to introduce temporary new measures to safeguard the UK high street against "aggressive debt recovery actions" during the Covid-19 pandemic.
  • Statutory demands and winding up petitions issued to commercial tenants are to be temporarily voided and changes to the use of Commercial Rent Arrears Recovery (CRAR) will follow.
  • These measures will only apply to those companies who cannot pay their debts as a result of Covid-19, and not to those with historic long-standing liabilities.
  • Re Saint Benedict's Land Trust Ltd; Re Shorts Gardens LLP Harper v Camden London Borough Council and another; Shorts Gardens LLP v Camden London Borough Council [2020] All ER (D) 159 (Apr).

Building on measures already introduced in the Coronavirus Act, on 23 April 2020 the UK government announced that new legislation will be put in place to prevent landlords putting tenants under, what the government considers to be, unfair undue pressure.

To prevent these practices there will be a temporary ban on issuing statutory demands, made between 1 March and 30 June 2020, and winding up petitions filed at court from Monday 27 April to 30 June. However, the ban will only apply if the debtor company "cannot pay its bills due to coronavirus", which is to be determined by the court. 

The new measures will be included in the Corporate Insolvency and Governance Bill which is due to be published imminently and secondary legislation will follow to prevent landlords using CRAR unless the tenant has more than 90 days of rental arrears, as opposed to the current seven days.

There is also a plea to commercial tenants who can pay their rent to continue to do so as the government calls on them to ease the strain being felt by commercial landlords at this time. This call to arms is unlikely to make its way into the new legislation and there is already evidence that cash positive tenants are ignoring it. In these circumstances it seems likely that a landlord would still be entitled to issue a statutory demand or winding up petition especially if it was clear that the tenant is simply trying to take advantage of the Covid-19 situation.

In Re Shorts Gardens LLP, the proposed government measures were put to the test. The applicants, Saint Benedict's Land Trust Ltd (SBLT) and Shorts Gardens LLP had each brought an application to injunct the presentation of two winding-up petitions by local authorities. The debts claimed under the winding-up petitions were long-standing, relating to unpaid national non-domestic rates (NNDR) and a number of unpaid cost orders.

Both applicants based their applications to injunct on the proposed government measures, pleading evidence that they were each unable to pay the debts claimed as a result of the outbreak of the Covid-19 pandemic. The applicants argued that the court should exercise its discretion in deciding whether it was just and equitable to grant an injunction in light of the proposals and the evidence put forward by the applicants.

In making its assessment as to whether the proposed government measures meant that the local authorities could not obtain winding-up orders against the applicants, the court turned to the language of the proposed measures and noted that the clear focus of the government announcement was on "the plight of tenants of retail and commercial properties facing demands from their landlords".

While the language of the proposals contained phrases that could suggest a wider application, when read in the context of the announcement as a whole, the court found that the proposals were not intended to extend to companies such as the applicants. This was because, the court said, neither applicant was a tenant in the retail or hospitality industry, and because they were not subject to petitions which are based on arrears of rent, but rather long-standing unpaid NNDR liabilities and cost orders. Crucially, the court found that the reasons the companies were unable to pay the debts claimed under the petitions had nothing to do with Covid-19, and therefore the proposals were not designed to apply in such cases.

On this basis, the court dismissed the applications for an injunction as an abuse of process.

So far we have only had sight of a short government announcement on the issue and we await draft legislation to fully understand the extent of the government's ban on statutory demands and winding up petitions along with confirmation of the following:

  • Who does the burden of proof lie with in determine why the tenant cannot pay its rent?
  • At what stage in the process would the court consider this test?
  • Does the backdating of the statutory demand ban mean that those already served are automatically void?

Furthermore, the government claims that these measures "will further safeguard the high street and millions of jobs by helping to protect them from permanent closure during this time"; however with confirmation last week that women's fashion retailers Oasis and Warehouse will close permanently after their administrators failed to secure a sale, the question remains, will these measures be enough to preserve the UK high street whilst avoiding any further detrimental impact on long suffering commercial landlords?

Ainslie Benzie and Raveena Ubhi are restructuring experts at Pinsent Masons, the law firm behind Out-Law.