The Commercial Rent (Coronavirus) Bill: A resolution to pandemic rent debts? (Part 2)
17th November 2021
Part 2 – Enforcement of protected rent debts and insolvency arrangements
This is the second of three articles in which we consider the Commercial Rent (Coronavirus) Bill and the new Code of Practice. Last time we considered the key definitions in Part 1 of the Bill and the proposed scheme of arbitration in Part 2. In this article, we consider the moratorium on enforcement of protect rent debts under Schedule 2 of the Bill and the restrictions on winding-up and bankruptcy petitions in Schedule 3.
This article will be of particular interest to property (and insolvency) practitioners because, whilst the Bill is still in the early stages of passage through Parliament, once the new laws are introduced it will also affect relevant claims issued on or after 10 November 2021.
Moratorium on Certain Remedies and Insolvency Arrangement
Part 3 of the Bill primarily refers to the Schedules, which concern statutorily imposed moratoriums (see below). However, two provisions reinforce the primacy of the Arbitration Scheme created by Part 2.
First, where a protected rent debt has been referred to arbitration, section 24 of the Bill prohibits Company Voluntary Arrangements, Individual Voluntary Arrangements, and compromise or arrangements under sections 896 and 901C of the Companies Act 2006. That prohibition continues for ‘the relevant period’, a definition that depends on whether an award was made or the reference is dismissed:
- If an award is made in accordance with section 14 of the Bill, the prohibition continues for 12 months after the date of the award.
- If the reference to arbitration is dismissed, the prohibition continues until the date the reference is dismissed.
- If an award is made but overturned on appeal, the prohibition continues until the date of that appeal decision.
- If the reference to arbitration is withdrawn or abandoned, the date of that withdrawal or abandonment.
Second, section 25 of the Bill prohibits (unless the parties agree otherwise) any arbitration in respect of a protected rent debt taking place during the moratorium period save for an arbitration under Part 2 of the Bill.
Turning to the Schedules themselves, Schedule 2 of the Bill provides a moratorium on enforcement of protected rent debts.
During the moratorium period, the landlord may not make a debt claim, use CRAR or enforce a right of re-entry or forfeiture. There are also restrictions on the landlord’s right to appropriate rent and to recover the debt from the tenancy deposit.
The moratorium period begins on the day on which the Bill is passed until the last day of the period for reference to arbitration (six months, subject to extension by the Secretary of State), or where the matter of relief from payment of the protected rent debt is referred to arbitration, the day on which the arbitration concludes (section 23(2)).
In relation to proceedings on a protected rent debt claim which is made on or after 10 November 2021 but before the day on which the Bill is passed, either party may apply to the court for the proceedings to be stayed and the court must stay the proceedings (unless they consider that that part of the Bill does not apply).
If Judgment is given in favour of a landlord on a debt claim on or after 10 November 2021 but before the day on which the Bill is passed in relation to a claim issued within that period, then the matter of relief from payment of the judgment debt can nevertheless be resolved by arbitration provided the debt or any interest is unpaid, and the judgment debt may not be enforced during the moratorium period. Judgments entered before 10 November 2021 are unaffected, as are judgments entered in relation to claims issued before 10 November 2021.
Schedule 3 prohibits presenting a winding up petition solely in relation to a protected rent debt and presenting a bankruptcy order petition in relation to a protected rent debt during the ‘moratorium period’ and the ‘relevant period’ respectively:
- The ‘moratorium period’ runs from the date the Bill is passed until the period for making a referral to arbitration (i.e. 6 months after the Bill is passed) has ended or the arbitration concludes.
- The ‘relevant period’ runs from 10 November 2021 until the period for making a referral to arbitration (i.e. 6 months after the Bill is passed) has ended or the arbitration concludes. This therefore has the potential to bite now and will be retrospective in effect if/ once the Bill is passed.
Schedule 3 also provides that where a bankruptcy order is made against the tenant on a petition from the landlord under section 267 of the Insolvency Act 1986 on or after 10 November 2021 but before the day on which Schedule 3 comes into force, and the order was not one which the court would have made had Schedule 3 been in force at the time, the court is to be regarded as having had no power to make the order and the order is to be regarded as void.
Whilst the Bill is in the early stages of passage through Parliament, it is relevant immediately. Once the Bill becomes law, any claim which was issued from 10 November 2021 is liable to be stayed, and any judgment given in relation to a claim issued from 10 November 2021 may be altered following arbitration.
The number of claims which are issued for commercial rent debts is likely to reduce significantly considering paragraph 3 of Schedule 2 of the Bill. However, if proceedings are issued after 10 November 2021, it will be interesting to see whether tenants will apply for a stay of the proceedings, and whether judges will be willing to grant a stay in anticipation of the Bill becoming law.
But it is particularly striking that arbitrators will be able to alter or undo certain judgments when making awards that are in accordance with the principles in section 15. In practice it may be that relatively few judgments are affected given that this provision is relevant to claims started and determined between 10 November 2021 and when the Bill comes into force.
The impact of the new laws on claims against guarantors is another point of interest. Under Schedule 2(3) and Schedule 3, any reference to a tenant includes a person who has guaranteed the obligations of the tenant under a business tenancy. This ensures that a landlord cannot circumvent the Bill by simply going after a guarantor instead, and reinforces the notion that the government intended the Bill to be a holistic piece of legislation that comprehensively addresses ‘protected rent debts’. In relation to claims made after the Bill is passed, and although it is not expressly stated, it is assumed that it is envisaged that claims against guarantors will fall within the definition of “debt claims” in paragraph 2(2) of Schedule 2. Were it otherwise, the principles lying behind the Bill would be far too easily avoided.
Insofar as Schedule 3 is concerned, this builds upon the Corporate Insolvency Governance Act 2020 (“CIGA”) by extending the moratoriums for a further 6 months. But it also extends the protections to individual business tenants who otherwise fell into a gap not covered by CIGA. That that gap existed in the first place may well be seen as an oversight by previous legislation, and so it is not surprising that it has now been remedied by the Bill.
The extended moratorium demonstrates the government’s continued dedication to the protection of businesses adversely affected by the pandemic. The expansion of the protections to business individuals also shows, however, that the government is keeping matters under review rather than simply replicating earlier legislation. And with the insolvency elements of the Bill reinforcing the arbitration scheme set up by the Bill, it gives an indication of the roadmap envisaged by the government.
In the third and final part of this series, we will be looking at the new Code of Practice and whether anything else can be gleaned of policy considerations and the way forward.
 The reference to section 896 of the Companies Act 2006 in section 24(2)(c) of the Bill is curious given that section 24(c) prohibits an ‘application for a compromise or arrangement’, which is more naturally within the scope of section 899 of the Companies Act 2006. Section 899 is also referenced elsewhere throughout the Bill, including section 24(4), whereas section 896 is not. This reference to section 896 does, however, appear intentional given its coupling with section 901C of the same Act.
By Edward Blakeney & Mattie Green