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Peculiar spot landlords find themselves during insolvency proceedings

Landlords find themselves in a very peculiar
Landlords find themselves in a very peculiar position during insolvency proceedings. FILE PHOTO | NMG 

The Insolvency Act 2015 introduced new provisions that may prevent landlords from enforcing their rights against a defaulting insolvent tenant. Landlords find themselves in a very peculiar position during insolvency proceedings, as they are not only unable to obtain rent but also incapable of ending the lease without an approval from the court or the administrator.

This peculiarity is as a result of the automatic interim moratorium statutorily provided for under the Insolvency Act once an administration order is issued, or perhaps once an administration application has been accorded but an order has not been granted.

The rationale of this automatic interim moratorium is to see to it that a company enjoys certain reliefs pending the hearing and determination of the administration application; requiring any person who intends to proceed with or institute legal proceedings against the insolvent company to first seek approval of the court. My bone of contention is with the landlord’s dilemma during this interim process. Like previously mentioned in one of my articles, the cause objective of the Insolvency Act is to enhance a rescue culture rather than liquidate assets of the company.

The import is to ensure that the company continues to trade as a going concern, which would inferably mean to continue occupying the premises let to it by a landlord.

Landlords who want to exercise their rights under the lease agreement upon default by a tenant can only do so once their application is approved by the Court. However, this approval if granted can only allow them to exercise a right of forfeiture by peaceable re-entry into the premises. This section is silent as to whether a landlord can be granted vacant possession of the let premises.

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Arguably, the drafters of the Insolvency Act had in mind that if vacant possession is granted then it means that the landlords will have been allowed to claim their debts over and against other creditors—a position which would be prejudicial to an insolvent company or its administrator.

This invariably means that their “debts” would have been preferred over other debts, whether secured and unsecured. This is because, as previously stated, the objective of the Insolvency Act is to facilitate the rescue or rehabilitation of the company.

And this rescue culture inculcated in the Act cannot be realised if landlords are granted the right to apply for and enforce vacant possession against tenants that are insolvent with huge accumulated rent arrears. Therefore, there seems to be a conflict between landlord’s interests (which is to gain vacant possession and let the premises to another solvent company/tenant) and the rescue culture inculcated by the Insolvency Act.

That therefore begs the question of how do we balance these two competing interests so as to help landlords not incur more losses from the accruing rent arrears, whilst furthering the rescue and rehabilitation objective of the Insolvency Act.

One would also argue that, if vacant possession is granted then it will defeat the rescuing steps taken by the company and in any unfortunate/fortunate event if a liquidation order is finally issued, then landlords will be compensated as creditors with the other classes of creditors. Is this not the peculiarity I’m talking about?

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