Coronavirus Blog Series: Rise of the Zombie Tenant
Published 4 November 2020
Whilst zombie businesses are not new, the protection and support afforded to commercial tenants by the Government may swell the ranks to bursting point. Such businesses, which are unable to cover debt servicing costs from current profits over an extended period, may have received a lifeline but it seems inevitable that the failure rate will increase in the longer term once the full economic effects of Covid-19 hit home and the support or protection ends.
In September 2020, there were a total of 926 company insolvencies in England and Wales comprising of 742 creditors’ voluntary liquidations (CVLs), 44 compulsory liquidations, 109 administrations and 31 company voluntary arrangements (CVAs). There were no receivership appointments. The overall number of company insolvencies decreased by 39% in September 2020, when compared to the same month last year.
In the same period in Northern Ireland, there were 10 company insolvencies in Northern Ireland, down 72% from September 2019. These consisted of 7 CVLs, 1 administration and 2 CVAs. There were no compulsory liquidations or administrative receiverships.
The updated Bankruptcy and Company guidance for the Masters’ Court issued in Northern Ireland on 30 October 2020 states that new creditors’ bankruptcy or winding up petitions cannot be presented until the Court has acquired adequate capacity to accommodate them. It is not therefore anticipated that guidance on new creditors’ petitions will issue in the short term.
Whilst the reduction in company insolvencies may be due to the Government protection and support, as well as the Courts not being able to process insolvencies as they would normally, it begs the question of what the impact and knock-on effect will be on landlords who will now be prevented for a further period of time from forfeiting any commercial lease for non-payment of rent or, for those in Northern Ireland, from issuing bankruptcy or winding up petitions.
No doubt landlords will be keen to know what mechanisms are being considered or put in place for the reintroduction of creditors’ legal remedies. In the meantime, landlords must consider what alternative legal remedies or other options for resolution are open to them.
This article is for general guidance only and should not be regarded as a substitute for professional legal advice.