Covid -19 Pandemic: Some of the Consequences for Disputes & Litigation
15 May 2020
The emergence of the Covid-19 pandemic pushed the government to come up with various measures to protect individuals and businesses from its negative impact. This week we will look into the implications brought about by certain measures within the disputes and litigation arena.
The Coronavirus Act 2020 (CVA 2020) and forfeiture of leases
The CVA 2020 received Royal Assent on 25 March 2020. This is a piece of legislation urgently enacted by the government in response to the rapid spread of the Covid-19 outbreak. While the Act touches upon many different sectors, mainly giving the government an extended power to handle the virus pandemic, we will focus on the provisions in relation to notices to terminate Assured Shorthold Tenancy Agreements, non-payment of rent in relation to business premises and wrongful trading changes brought in under the legislation.
Section 81 of the Act restricts the ability of residential landlords to repossess residential premises. In other words, now the landlord must give their tenant at least three months’ notice for insisting that their property be vacated, as opposed to two weeks’ notice before the CVA 2020 took effect. Therefore, in the event of rent arrears or any other breach of the tenancy agreement, a landlord now has to wait at least three months before being able to commence possession and money judgment proceedings once the section 8 notice period has elapsed. This provision will be in force until the 30 September 2020.
Section 82 of the Act provides tenants protections for non-payment of rent of business premises. From 27 March 2020 until 30 June 2020, a landlord’s right of re-entry or forfeiture for non-payment of rent cannot be enforced. However, this provision does not free tenants from contractual duties. Tenants still have the obligation to pay rent, and a landlord can seek other remedies to enforce the debt, such as bringing a law suit for breach of contract. Also, section 82 does not apply to short leases that are of six months or less.
Insolvency law - Directors’ Duties
On 28 March 2020, the Business Secretary Alok Sharma announced changes to the insolvency law to help businesses survive through these uncertain times. The changes include a temporary suspension of wrongful trading provisions to be applied retrospectively from 1 March 2020. These changes are yet to be set out in legislation.
According to existing Insolvency legislation, directors of a company can become personally liable for the company's debts if they fail to take every step to minimise potential losses to creditors once there is no reasonable prospect of avoiding insolvency. But this will be suspended due to the changes.
However, this does not mean that a director will not be scrutinised and held responsible for their actions. They will still be expected to have the company’s best interests at heart.
Following the directors' disqualification regime, a director can be disqualified if their conduct is considered unfit. How responsible the director was for the company’s insolvency is investigated in order to determine this. If their actions caused a quantifiable loss to one or more creditors, directors could be faced with a compensation order.
Directors can also face criminal proceedings if they knowingly carry on business of the company with the intent to defraud creditors under the fraudulent trading regime. Directors then can potentially be disqualified, given a custodial sentence and held personally liable for the financial loss suffered.
With the current legal changes due to the Coronavirus, this is the time to be more cautious when it comes to disputes and litigious matters. It is crucial to come up with an efficient strategy to protect one’s interests. Should you require assistance in relation to disputes, please contact us.
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15/05/2020 - Covid -19 Pandemic: Some of the Consequences for Disputes & Litigation
Senior Associate and Head of Dispute Resolution/Litigation