The Tenancy from Hell A Restructuring and Insolvency Special - PowerPoint PPT Presentation

The Tenancy from Hell – A Restructuring and Insolvency Special Michelle Adams Oliver Ward-Jones Anita Shanghavi Wednesday 26 September 2018

Welcome!  Topics to be covered today:  Arrears;  Commercial Rent Arrears Recovery;  Forfeiture; and  Rent deposits.  All amongst various insolvency and restructuring methods…  Seminar, not a lecture! squirepattonboggs.com squirepattonboggs.com 2

Facts  SPB has been engaged by Prudent Properties Limited (a professional landlord) to advise them as to their options in respect of a failing restaurant chain, Jeremy’s Jamaican Restaurants Ltd  Term of the lease is 10 years and there is a mutual break option on the 5 th anniversary of the term  Term commencement was 30 September 2014  Jeremy’s current rent is £80,000 per annum squirepattonboggs.com squirepattonboggs.com 3

Initial advice Michelle Adams squirepattonboggs.com

Initial advice  Prudent has heard market rumours that Jeremy’s is in financial difficulties  What are the indicators you should look for to affirm the market rumours? DISCUSS!!! squirepattonboggs.com squirepattonboggs.com 5

Indicators of insolvency  Situation on the ground  Is the restaurant open and trading? Busy or quiet?  Are supplies arriving at the premises as normal?  Reduction in staff?  Removal of leased equipment or presence of other creditors taking action against the tenant?  Background checks  Insolvency “ Courtchex ” searches, Companies House status and other financial searches  Instruct a reputable investigator to ascertain assets associated to the tenant and any guarantor squirepattonboggs.com squirepattonboggs.com 6

Indicators of insolvency  Approaches by the tenant (or lack of communication!)  Variation in rent payments (i.e. yearly to quarterly, quarterly to monthly, monthly to weekly)  Suggestions for assignment or subletting  Complete silence?  Press and publications  Trade press  London Gazette squirepattonboggs.com squirepattonboggs.com 7

Options prior to restructuring or insolvency  The searches and information received on Jeremy’s current status does not look positive and they have missed their first rent payment  What options does Prudent have at this stage? DISCUSS!!! squirepattonboggs.com squirepattonboggs.com 8

Pre-restructuring/insolvency options  Forfeiture  Commercial Rent Arrears Recovery (CRAR)  Statutory demand  Issue Court proceedings  Pursue a guarantor or former tenant or former guarantor (if any)  Draw down from rent deposit squirepattonboggs.com squirepattonboggs.com 9

Company Voluntary Arrangement (CVA) Ollie Ward-Jones squirepattonboggs.com squirepattonboggs.com

Further facts  Unfortunately Jeremy’s financial position has worsened  Prudent has now been presented with a CVA proposal  What parts of the proposal should Prudent consider in detail? DISCUSS! squirepattonboggs.com squirepattonboggs.com 11

The CVA Proposal  Deadline  Moratorium?  Estimated Outcome Statement  Duration  Proposed level of rent reduction  What other liabilities are compromised?  Any other rights affected? squirepattonboggs.com squirepattonboggs.com 12

Grounds for challenging a CVA  Unfair prejudice or material irregularity  Successful challenges include:  Prudential Assurance Company Ltd and others v PRG Powerhouse Ltd and others [2007] EWHC 1002 (Ch)  Mourant & Co Trustees Ltd and another v Sixty UK Ltd and others [2010] EWHC 1890 (Ch) squirepattonboggs.com squirepattonboggs.com 13

Effect of a CVA on Prudent’s options Options Forfeiture ? CRAR ? Statutory demand ? Court proceedings ? Pursue a guarantor/former ? tenant Rent deposit ? squirepattonboggs.com squirepattonboggs.com 14

Administration Michelle Adams/Ollie Ward-Jones squirepattonboggs.com

The story so far….  Further bad news for Jeremy’s, the CVA has failed and it has now entered administration  Jeremy’s is continuing to trade from Prudent’s premises (and paying the rent)  The business is being marketed by the administrators who believe they have found a buyer of the business if the lease can be assigned  What factors would you consider before consenting to the assignment? DISCUSS!!! squirepattonboggs.com squirepattonboggs.com 16

Administration  Terms  Covenant Strength of Buyer  Vacant possession/liability for rates  Rent as an expense in Administration squirepattonboggs.com squirepattonboggs.com 17

Administration  But what if you don’t  Moratorium  Consent of Court or Administrator  Compare • Innovate Logistics Limited (in administration) v Sunberry Properties Limited [2008] EWCA Civ 1261 • Re SSRL Realisations Ltd (in administration) [2015] EWHC 2590 (Ch). squirepattonboggs.com squirepattonboggs.com 18

Effect of an administration on Prudent’s options Options Forfeiture Subject to Moratorium CRAR ? Pursue a guarantor/former Yes tenant Rent deposit Subject to Moratorium squirepattonboggs.com squirepattonboggs.com 19

Liquidation Michelle Adams/Ollie Ward-Jones squirepattonboggs.com

The story so far….  The purported appointment of administrators was found to be invalid  Administrators applied to Court to rectify the appointment  Judge declined to make the order and placed the Company into Compulsory Liquidation before the lease was assigned  Buyer has pulled out  Can you now forfeit the lease? DISCUSS!!! squirepattonboggs.com squirepattonboggs.com 21

Compulsory Liquidation  Moratorium  Disclaimer  Surrender  Creditors/Members Voluntary Liquidation  Damage limitation squirepattonboggs.com squirepattonboggs.com 22

Effect of an administration on Prudent’s options Options Voluntary Liquidation Compulsory Liquidation Yes – assuming no Forfeiture Subject to Moratorium application for relief CRAR Yes - assuming no ? application for relief Pursue a Yes Yes guarantor/former tenant Rent deposit Yes - assuming no Subject to Moratorium application for relief squirepattonboggs.com squirepattonboggs.com 23

Contact Information Michelle Adams Senior Associate Real Estate Litigation 0121 222 3137 michelle.adams@squirepb.com Oliver Ward-Jones Anita Shanghavi Associate Associate Restructuring & Insolvency Real Estate 0121 222 3510 0121 222 3392 oliver.ward-jones@squirepb.com anita.shanghavi@squirepb.com squirepattonboggs.com 24

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