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30 September 2021 0 Comments
Posted in Dispute Resolution, Opinion

The Government is starting to pull off the debtor protection plaster

Author headshot image Posted by , Senior Associate

Throughout the pandemic, the Government put into place legislative measures with the enactment of the Corporate Insolvency and Governance Act 2020. The aim of the legislation was to help and protect businesses and commercial tenants struggling financially due to Covid-19 by preventing the use of certain remedies.

As of 1 October 2021, some of that protection will be gone.

orporate Insolvency and Governance Act 2020

Please read our previous blogs on this topic:

New key insolvency measures introduced – Corporate Insolvency and Governance Act 2020

The Corporate Insolvency and Governance Act 2020: Yet another saga!

Landlord and tenant debt recovery during the pandemic


 

Which protections are going?

Debts of over £10,000 will again be capable of being demanded by formal Statutory Demands served under insolvency legislation and, in the event of non-payment or resolution, creditors will be able to present Winding-Up Petitions.

Unfortunately, for commercial landlords the position has not been altered.

Sums payable under a Lease whether over £10,000 or not still cannot, in the event that the arrears are capable of being linked to Covid-19, be pursued by these methods. That position will remain the same until March 2022 (at the date of writing).

However, as stated previously, this does not specifically prevent a landlord from issuing a debt claim and taking steps to enforce that by other means.

What has changed?

The size of a debt that can be pursued in this way. Previously the limit was £750. Now it is £10,000.

Whilst this is a substantial increase, the limit for a Bankruptcy Petition is £5,000 and this feels more in line with that and, the cost of presenting a Petition which includes a requirement to pay a fairly hefty deposit for the Official Receiver plus a Court fee.

Before a Petition can be presented, an additional notice, known as a Schedule 10 Notice, providing the debtor with 21 days within which to put forward reasonable proposals for settlement needs to be served.

This is in addition to the Statutory Demand which provides for this within the prescribed form.

If the Statutory Demand is not responded to or remains unresolved, through reasonable settlement proposals being received, or the debt being secured or compounded for after 21 days, a Petition can be presented.

When presenting a Petition, compliance with this additional provision will need to be shown.

Can this be avoided?

An application for permission to avoid this additional step can be made to the Court but in view of the fact that the timescale aligns with the timescale for responding to the Demand, we would question whether incurring the additional costs of doing so and waiting for the outcome of that will be worth it. This will need to be considered on a case by case basis.

It may be, for example, that if the debtor has made settlement proposals previously but these have never come to fruition and, it is considered that providing this additional Notice will simply result in the same or similar proposals being received simply in an attempt to delay matters further, the Court may consider the Notice to be inappropriate in that case.

Do we envisage issues arising?

As with all new Rules, there are unknowns and only time will tell.

It is not yet known whether the above example would be an appropriate reason for a successful application for permission.

It is also not yet known how a Court will deal with the question of what ‘reasonable proposals’ are with the risk that a Petition is contested and dismissed for that reason. We are hopeful that a Court takes a sensible approach but debtors may chance it!

It is envisaged that some debtors could seek to use these new Rules as dilatory tactics for their own benefit however.

Contact us to find out how a Royds Withy King dispute resolution and debt recovery lawyers can help you:

0800 923 2076     Email uscdr.enquiries@roydswithyking.com

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