The Corporate Insolvency and Governance Bill: English High Court backs tenants affected by COVID-19

In previous blogs, we’ve discussed the temporary changes to the law being brought about by the UK Government’s Corporate Insolvency and Governance Bill. The Bill is set to strip Landlords of some of the tools available to recover arrears from their tenants. It will render statutory demands served between 1 March to 30 June 2020 ineffective, while making it near impossible for landlords to liquidate tenants (by winding them up) if they have been financially affected by COVID-19.

We talked about the Bill in more detail here and the fact that most tenants will be able to argue that they have taken a financial hit as a result of COVID-19. Two recent cases in the English High Court demonstrate this, even before the new rules become law. In both cases, the tenants were successfully granted court orders to protect them from being made insolvent by their landlords.

Travelodge Hotels Limited v Prime Aesthetics Limited, Prime Hotels Limited, Orbital Estates Limited [2020] EWHC 1217

• Travelodge could show that prior to the COVID-19 outbreak, its business was in a “relatively healthy state”. By contrast, during the lockdown restrictions, its revenues dropped by 95%.
• The court was convinced that Travelodge fell within the category of tenants the Government sought to protect through its proposed changes to the law.
• The hotel chain also had a turnaround plan in place and the court agreed that allowing this plan to take its course would be more beneficial to the landlord than winding up.

Re A Company (Injunction to Restrain Presentation of Petition) [2020] EWHC 1406

• While it wasn’t explained here how the anonymous high street retailer had been financially impacted by COVID-19, the Court was convinced that there was “a strong case (at the lowest)” that it had been.
• The Court emphasised that its decision was supported by the Bill’s “clear policy objectives”.

Even while we remain in limbo – waiting for the Bill to become law – the trajectory of the English courts is clear, and the position for landlords even more so. Landlords are going to be incredibly hard pushed to successfully wind up tenants if there’s any suggestion that their business has been financially disrupted by COVID-19. We expect Courts in Scotland to take a similar approach. The Bill is due to enter its final stages in Parliament this week, after which we anticipate that it will (finally) come into force.