This browser is not actively supported anymore. For the best passle experience, we strongly recommend you upgrade your browser.

Freshfields Transactions

| 2 minutes read

UK extension of commercial forfeiture moratorium – unlikely to turn the tide?

Following the announcements in the recent budget where the UK finance minister indicated a desire to begin scaling back government relief whilst acknowledging the need to maintain and extend support in the short term, it is perhaps not surprising that the temporary measures restricting forfeiture of commercial leases have been extended to 30 June 2021.

Despite being told that the previous extension (extending restrictions to the end of March 2021 announced in December last year) would be the 'final extension to protections from the threat of evictions', this latest extension shows that the UK Government is concerned about the so called ‘cliff-edge’ – an upsurge in insolvencies as a result of support being withdrawn too quickly.

The question is then whether related restrictions on creditor actions, particularly the issue of statutory demands, will also be extended. It was statutory demands, rather than forfeitures, that had been expected in waves from 1 April as landlords seek to test what liquidity there is, provoke action and avoid the re-letting and empty rates burden that may follow a successful forfeiture.

The Government has previously announced its intention to support commercial tenants and landlords in coming to bilateral arrangements on arrears and has published best practice in support of these negotiations. In addition to the extension of relief, the Business Secretary announced a ‘call for evidence’ in order to assist in monitoring the progress of these negotiations and signalled that further steps may be taken if these negotiations do not address the risk to businesses.

Bilateral negotiations (even supported by such 'further steps') may not be enough for all companies and those with substantial rent arrears may continue to turn to formal restructurings. It is possible that the further steps will be more aimed at smaller tenants who are unable to pursue such options.

For the larger tenants, active pursuit of a company voluntary arrangement (CVA) or restructuring plan will be part of the negotiating strategy – it provides the tenant with most of their leverage as well as being the Plan B where consensual agreements are not reached. The question is therefore more likely to be 'when' rather than 'if' there is an increase in the use of such processes.

After a number of CVAs at the start of the COVID-crisis and a quieter period following, Caffe Nero recently launched CVAs to address their rental obligations and Virgin Active recently launched restructuring plans to address, among other things, their rental arrears. The Malaysia Airlines scheme of arrangement confirmed that lessors can be combined together in a single class, thus opening the door to the use of plans to cram down landlords in the manner contemplated by Virgin Active. If successful, the latter could set a precedent for using the plan to cram down landlords, which others may look to follow. The advent of the restructuring plan gives debtors another avenue to seek to compromise lease liabilities (the ability to cram-down classes addressing the ‘veto right’ of individual classes that has prevented schemes of arrangements being used for such a purpose).

However, other tenants may feel incentivised to bide their time and enjoy the Government’s protection for as long as it lasts before launching a process. On top of this, some may be deterred from acting whilst the market awaits judgment on the challenges to Regis and New Look’s CVAs. It will be interesting in due course to see the effect these challenges have on whether the market opts to continue utilising CVAs or turns to the restructuring plan for lease compromises. In the meantime, for most, the 'when' remains 'not yet', but with some sense that the Government's actions are delaying rather than preventing a reckoning.

In the meantime, for most, the 'when' remains 'not yet', but with some sense that the Government's actions are delaying rather than preventing a reckoning.


europe, restructuring and insolvency