A furlough scheme for employees was put in place for employees, it is proposed that insolvency law on wrongful trading will be suspended and commercial tenants are protected from eviction by extending the irritancy notice period by 14 days to 14 weeks. Undoubtedly more protective measures are to come. There is also no doubt that measures are necessary to give debtors of all kinds of protection against unfair or aggressive enforcement practices by creditors. But creditors' rights are important too and, at the moment, they are being largely ignored.
If we take the example of landlords and tenants - are landlords simply expected to forego payment of rent during the next few months? There has been no legislation which allows tenants to automatically vary their contractual obligations with landlords nor are their obligations under leases suspended. However, we are already seeing a proliferation of queries from landlords whose tenants are simply saying "I'm not paying". The popular imagine in the press is, of course, a huge institutional landlord and a small business tenant who is struggling to make ends meet. There are no doubt plenty of such cases around. However, the position is very often the reverse and what we are seeing is large multi-national tenants simply refusing to pay rent to small time landlords who rely on the rent for their income or, in some cases, retirement.
So what can landlords do? As outlined above, irritating the lease will still be an option but the irritancy notice period will be months rather than weeks so that is not an attractive solution to short-term cashflow problems. The other option is typically court action. The courts are, however, by and large, only dealing with "urgent" business and actions for payment of money are not apparently urgent, even though those out of pocket and struggling to pay their bills would disagree. Our experience is that writs seeking payment of debt are not being warranted by the courts. It may simply be a resourcing issue at court and the current situation is, no doubt, a challenge for the courts as well. But it is very difficult indeed to see why most actions are not simply being dealt with as usual but on the (electronic) papers or by video link rather than in person at court. The legal profession and our clients need absolute clarity from the court system as to what can and cannot be done for clients at this time. Our clients are relying on the courts' continued support in that regard. The proper operation of the justice system is crucial for all cases, not just "urgent" ones.
The other place that a landlord who wasn't getting paid rent could usually turn is to insolvency laws. As I have said above, directors of non-paying companies are getting protected in law from wrongful trading and so will, in theory, be able to incur ongoing rent in the optimistic hope that their business will emerge solvent at the end of this downturn. Directors will have to be very careful to tread on the right side of what seems to us to be a very thin line. Their duties to creditors are not suspended completely and how directors should act is a very difficult question, even for the most experienced among them.
Landlords are enquiring as to whether they can turn to liquidation petitions as a means of getting protection at this time and ensuring that the assets of tenants are brought under the control of an insolvency practitioner. However, how, in practice, can they do that? It appears at the moment as if they can't. Sheriff Officers and messengers-at-arms have had very specific guidance from the government to the effect that monetary debts are not "urgent" matters and so service of papers in these matters is not appropriate. Indeed, we have heard of one sheriff officer being told as much by a police officer. So serving a statutory demand for payment for unpaid rent (or indeed any other monetary debt) and then following that up with a liquidation petition is not, at the time this article was published, a realistic possibility.
The measures that have been put in place to protect debtors are valuable and important. The government has long recognised that rescuing good businesses and helping them through difficult times is better than letting them fail. A lot of landlords and other creditors are ultimately going to have to accept that they will only ever recover a proportion of the debt that they are due. Debtors, including tenants, will start to use administration to protect themselves even more from enforcement action by seeking the protection of the statutory moratorium. However, if you are a creditor and you believe that a tenant or other debtor is using the current crisis as an excuse not to pay (and unfortunately there are such people out there) then it is important to start to plan for recovery now. Speak to us about what steps you should take now to protect your position meantime and when the courts open again for all business (which they will have to do sooner rather than later) you will be first in line.