Changes to insolvency rules which are designed to reduce the cost of administrations and company liquidations will result in a better deal for landlords.
The new rules, which we reported just last month, aim to improve the transparency of the costs associated with insolvencies by asking all UK insolvency practitioners to provide creditors with an upfront summary of the estimated costs of an insolvency. They will also have to provide details of the intended work and the likely timescale. Any changes to these estimates will require the consent of creditors.
The government has also tabled an amendment to the Small Business, Enterprise and Employment Bill, to widen the threshold and make it easier for creditors to call a physical meeting. The amendment will set the requirement to call a creditor’s meeting at 10 percent of creditors in value, 10 percent in number, or 10 creditors. The current threshold is just 10 percent of creditors in value.
What does this mean for landlords and other creditor groups?
Despite commonly being one of the major creditors in any company rescue or business turnaround situation, commercial landlords often find they are left in the dark about the progress of the company insolvency once an insolvency practitioner has been appointed.
Although creditor consent is already required to agree an insolvency practitioner’s fee, this only applies to their hourly rate and does not take into account the anticipated timescale of the project. This has left many creditors frustrated, as much of the money they are owed by the company is taken in fees, leaving them out of pocket.
The process can be made that much more frustrating for landlords, who must stand by and watch as a company rescue or business turnaround takes place in a property they own. The situation is then exasperated further when they find they have been left with very little of the rental arrears they are owed.
A greater opportunity to engage from the outset
When a commercial tenant goes bust, it is essential for the landlord to establish whether the tenant is subject to administration, compulsory liquidation, voluntary liquidation, receivership, company voluntary arrangement (CVA), or some other company rescue procedure, as each has different implications for the landlord. Here you can read more about the implications of each.
Administrations, in particular, are an essential turnaround function that can allow businesses the breathing room they need to turn their fortunes around. However, sometimes the costs associated with such a procedure can bring little benefit to landlords and muddy what would otherwise be considered a successful outcome.
The amendments to the requirements to call a creditors’ meeting will come as good news not just to landlords, but to all creditors of companies entering insolvency. This will give them greater opportunity to engage in the process from the off, with 10 percent of creditors by number or 10 creditors, far easier to achieve than 10 percent in value.
The insolvency regime can be opaque and difficult to access for creditors and particularly for commercial landlords. When faced with closing stores or buyers in pre-pack administrations seeking significant discounts many landlords would prefer to treat the failure as a fait accompli. However, these new rules provide landlords with the ability to engage with the process from the off, giving them more of a say in the anticipated costs of a project and helping them to recoup more of the money they are owed.
To speak to an insolvency specialist and obtain free no obligation advice call 08000 746 757.