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

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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!

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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 5th

anniversary of the term

• Term commencement was 30 September 2014
• Jeremy’s current rent is £80,000 per annum

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Initial advice

Michelle Adams

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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!!!

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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

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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

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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!!!

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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

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Company Voluntary Arrangement (CVA)

Ollie Ward-Jones

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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!

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The CVA Proposal

• Deadline
• Moratorium?
• Estimated Outcome Statement
• Duration
• Proposed level of rent reduction
• What other liabilities are compromised?
• Any other rights affected?

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Grounds for challenging a CVA

• Unfair prejudice or material irregularity
• Successful challenges include:
• Prudential Assurance Company Ltd and others v PRG Powerhouse Ltd and
• thers [2007] EWHC 1002 (Ch)
• Mourant & Co Trustees Ltd and another v Sixty UK Ltd and others [2010]

EWHC 1890 (Ch)

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Effect of a CVA on Prudent’s options

Options Forfeiture ? CRAR ? Statutory demand ? Court proceedings ? Pursue a guarantor/former tenant ? Rent deposit ?

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Administration

Michelle Adams/Ollie Ward-Jones

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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!!!

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Administration

• Terms
• Covenant Strength of Buyer
• Vacant possession/liability for rates
• Rent as an expense in Administration

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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).

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Effect of an administration on Prudent’s options

Options Forfeiture Subject to Moratorium CRAR ? Pursue a guarantor/former tenant Yes Rent deposit Subject to Moratorium

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Liquidation

Michelle Adams/Ollie Ward-Jones

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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!!!

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Compulsory Liquidation

• Moratorium
• Disclaimer
• Surrender
• Creditors/Members Voluntary Liquidation
• Damage limitation

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Effect of an administration on Prudent’s options

Options Voluntary Liquidation Compulsory Liquidation Forfeiture Yes – assuming no application for relief Subject to Moratorium CRAR Yes - assuming no application for relief ? Pursue a guarantor/former tenant Yes Yes Rent deposit Yes - assuming no application for relief Subject to Moratorium

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Contact Information

Oliver Ward-Jones Associate Restructuring & Insolvency 0121 222 3510

• liver.ward-jones@squirepb.com

Anita Shanghavi Associate Real Estate 0121 222 3392 anita.shanghavi@squirepb.com Michelle Adams Senior Associate Real Estate Litigation 0121 222 3137 michelle.adams@squirepb.com

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Abu Dhabi Beijing Berlin Birmingham Böblingen Bratislava Brussels Budapest Cincinnati Cleveland Columbus Dallas Darwin Denver Doha Dubai Frankfurt Hong Kong Houston Kyiv Leeds London Los Angeles Madrid Manchester Miami Moscow Newark New York Northern Virginia Palo Alto Paris Perth Phoenix Prague Riyadh Israel Italy Mexico Panamá Peru Turkey Venezuela

Global Coverage

Africa Argentina Brazil Chile Colombia Cuba India Office locations Regional desks and strategic alliances San Francisco Santo Domingo Seoul Shanghai Singapore Sydney Tampa Tokyo Warsaw Washington DC West Palm Beach