UK extends certain relief measures under CIGA

September 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

September 2021 Issue

On 16 June 2021, the UK government announced its decision to extend some of the temporary relief measures introduced under the Corporate Insolvency and Governance Act 2020 (CIGA). The Act was introduced in June 2020 to ease pressures on businesses facing imminent threat of insolvency, following government orders and restrictions issued in response to the coronavirus (COVID-19) pandemic.

Specifically, the extension applies to the temporary restrictions in Schedule 10 of the CIGA on issuing statutory demands and winding-up petitions. The restriction in Schedule 10 of CIGA itself provides that a winding-up petition may not be issued unless the creditor has reasonable grounds for believing and can evidence that COVID-19 has not had a financial effect on the debtor company.

For tenants, the forfeiture moratorium and restrictions on the landlord recourse to the Commercial Rent Arrears Recovery (CRAR) process have been extended to 25 March 2022. Those businesses that have had to remain closed during the pandemic and have been unable to pay rent on their commercial property will continue to be protected from eviction and CRAR recovery.

The extension applies to all businesses, but the new measures that will be introduced by primary legislation will only cover those impacted by closures. This mean that rent debt accumulated before March 2020 and after the date when relevant sector restrictions on trading are lifted, will be actionable by landlords as soon as the tenant protection measures are lifted.

The government expects landlords to make allowances for the ringfenced rent arrears from these specific periods of closure due to the pandemic and share the financial impact with their tenants.

The government has also stated that it intends to introduce legislation to help tenants and landlords work together to reach an agreement on how to handle rent arrears. This could be done by waiving some of the total amount or agreeing a longer-term repayment plan. If the parties cannot come to an agreement, the new legislation will introduce a legally binding arbitration process delivered by private arbitrators.

To date, there have been very few larger tenants attempting to restructure their lease liabilities and accrued rent. However, questions remain as to whether the extension and the arbitral backstop will result in fewer formal restructuring actions, including company voluntary arrangements (CVAs) or restructuring plans.

“We have provided unprecedented support to businesses to help them through the pandemic,” said communities secretary Robert Jenrick. “However, as we continue to lift restrictions and start to return to business as usual, tenants and landlords should be preparing to pay rent or come to an agreement if they have not done so already.

“This special scheme reflects the unprecedented nature of the pandemic and responds to the unique challenges faced by some businesses,” he continued. “It strikes the right balance between protecting landlords while also helping businesses most in need, so they are able to reopen when it is safe to do so. They will ensure many viable businesses can continue to operate and debts accrued as a result of the pandemic are resolved to mutual benefit swiftly. The government has committed £350 billion to keep businesses running, people in jobs and ensure we can build back better from the pandemic.”

“The new arbitration process will be underpinned by law, providing commercial tenants and landlords with peace of mind that Covid-related rent debts will be settled fairly, and with finality,” said business secretary Kwasi Kwarteng. “In the meantime, I encourage landlords and tenants to keep working together to reach mutually beneficial agreements. Extending the ban on commercial evictions is a necessary measure to help businesses through the final stages of the pandemic, and comes on top of our generous £350 billion package of support that has been available throughout the pandemic.”

The CIGA was notable for many of the insolvency measures it introduced. A large number of the measures introduced were real estate focused, including restrictions for landlords from forfeiting commercial leases – again for a period initially to 30 September 2020.

Richard Summerfield