Winter Contents STOP PRESS. Commercial rent arrears recoveryommercial RENT. Insolvency Under the supervision of an insolvency practitioner...

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1 STOP PRESS Contents Rent as an expense of an administration or liquidation - The Court of Appeal has clarified what rent is payable as an expense: the office holder must make payments at the rate of rent for the duration of any period during which he retains possession of the demised premises for the benefit of the winding up or administration. The rent will be treated as accruing from day to day. Those payments are payable as expenses of the winding up or administration. Goldacre and Luminar have been expressly overruled. Pillar Denton Limited v Michael Jervis: Re Games Station [2014] EWCA Civ 180 If you have any questions about the treatment of rent in any situation where you have been appointed an office holder since 25 December 2013, please contact FWJ s Insolvency team. STOP PRESS Rent as an expense of an administration or liquidation... 2 Commercial rent arrears recoveryommercial RENT Commercial Rent Arrears Recovery... 2 Insolvency Under the supervision of an insolvency practitioner... 5 Litigation Debt recovery: a reminder about the use of winding up petitions... 6 Employment Employment Law in 2014: What to expect... 8 If you want to know more about any of these topics, or have any questions, please contact us on: info@franciswilksandjones.co.uk

2 In Brief Welcome to the FWJ INFORMER. We are committed to excellence and aim to provide the highest possible quality of legal services to our clients. The FWJ INFORMER explains some of the recent legal developments that are relevant to professionals working in the asset based lending industry and how they affect the conduct of your business. This edition of the FWJ INFORMER looks at key features of the Commercial Rent Arrears Recovery procedure that is coming into force on 6 April Our insolvency team looks at when a company is treated as being under the supervision of an insolvency practitioner in the context of the application of the Transfer of Undertakings (Protection of Employment) Regulations Our litigation team looks at a couple of recent court decisions which are a useful reminder about the consideration that has to be given before winding up petitions are used as a debt recovery tool. Finally, as part of our expanded services to our corporate clients, we look at some of the changes to employment law anticipated in If you would like an employment law health check of your business, please contact us. COMMERCIAL RENT ARREARS RECOVERY No more distress After many years of anticipation, the ancient remedy of distress will finally be abolished this spring. With effect from 6 April 2014, commercial landlords will have a new statutory remedy of Commercial Rent Arrears Recovery ( CRAR ) at their disposal. There are a number of crucial changes to the process: what type of premises will CRAR apply to, what amounts are recoverable, who can take the action and when. For landlords, there will undoubtedly be a sense that they have a much narrower and less flexible remedy; for example CRAR can only be used on purely commercial premises and the old trick of calling insurance premium and service charges rent will no longer work, only actual rent can be recovered by CRAR. Fixed times for exercising CRAR are introduced, in the place of the old sunrise to sunset, which makes CRAR more useful in winter, but landlords will not be able to exercise CRAR on a Saturday if this is not a business s normal working day. Landlords are also precluded from seizing any assets belonging to a third party that are on the premises. CRAR will involve landlords in more costs, as they must use certificated bailiffs and cannot exercise the remedy directly themselves. The other big change for landlords is that CRAR is a much slower remedy. At least 7 days rent must be in arrears for at least 7 days before the remedy can be used, instead of immediately the tenant is in arrears. Most importantly, a tenant must be given 7 business days written notice of a landlord s intention to use CRAR. Once given, that notice is valid for 12 months. A slightly longer period of notice must also be given before a sale of the assets. It has been common for tenants in arrears of rent who are concerned a landlord might distrain to use administration as a means of preventing the landlord taking any action. It can be anticipated that with this new formal notice period, more tenants will be considering administration as part of their business strategy. To guide both landlords and tenants, and their advisers and agents, through these changes, we set out below a brief summary of some of the key features of CRAR and compare them to the position with distress. 2

3 Distress CRAR Type of premises Commercial and the commercial part of mixed-use premises Commercial only if the lease covers mixed-use, CRAR may not be used Lease There must be a current tenancy There must be a written and current lease in place What Any sum treated as rent in the lease, for example service charges, rates, insurance etc., may be distrained Only the actual rent, nothing else How soon The first day the tenant is in arrears At least 7 days of arrears and the rent owed must be for the value of at least 7 days rent Court order Not required Not required When Monday to Saturday from sunrise to sunset Any day of the week from 06:00 to 21:00, or the tenant s normal business hours if different Who A certificated bailiff or the landlord or their agent Only a certificated bailiff Where The demised premises The demised premises Notice period No notice period required A minimum of 7 days (excluding Sundays and bank holidays) notice given to the tenant that the landlord is exercising his right to use CRAR Can it be shorter? N/A If he can demonstrate a risk the tenant will remove the goods, the landlord can ask the court to reduce the notice period How long is notice valid? N/A Once served, the notice is valid for 12 months from the date of delivery How is notice served? N/A Notice may be served by post, hand, fax and electronic communications such as 3

4 Distress CRAR Right to appeal? No provision Tenant may apply to have the Notice set aside or apply for an order to stay enforcement Entry Via an open or unlocked door, a usual means of entry or an open window Via an open or unlocked door or a usual means of entry (but no longer via an open window) Seizure Goods belonging to the tenant and in some circumstances to a third party Only goods belonging to the tenant Tools of the trade Tools belonging to and for exclusive use of a sole trader are exempt from seizure Tools of the trade exempt up to a value of 1,350 Value of goods The goods seized should be approximately the value of the arrears and costs The enforcement agent may not take control of goods with a value greater than the rent owing plus the costs and he must give the tenant a valuation of the items seized Sale 5 days notice of a sale must be given to the tenant A clear 7 days notice must be given Sale Normally by auction Only by auction unless a court order is obtained to permit an alternative method of sale Sub-tenants Landlord can instruct sub-tenants to pay him directly The landlord has to give the sub-tenant 14 days notice that they are to pay him directly Administration As the landlord can act so quickly, he will normally act before a business goes into administration so this rarely arises The landlord will need permission either from the administrator or the court to exercise CRAR Minimum time frame 6 days: 21 days : 1 day of arrears and five days notice of sale 7 days arrears, 7 days notice of the landlord exercising his right to use CRAR and 7 days notice of sale 4

5 Insolvency Under the supervision of an insolvency practitioner The buyers or transferees of distressed businesses from appointed liquidators will be familiar with the provisions of regulation 8(7) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 ( TUPE ). This regulation operates to disapply those parts of TUPE which would otherwise mean that the transferee automatically takes over the employees of the transferring company on their old contract terms and is liable for any automatic unfair dismissal claims if the employees are dismissed for a reason connected with the transfer. By way of reminder, for a transferee of a business to be able to benefit from the TUPE exemption pursuant to regulation 8(7), the transferring (distressed) business must be subject to insolvency proceedings with a view to the liquidation of its assets and under the supervision of an insolvency practitioner. There can be no question that this is the case where a company is in one or other form of liquidation with an insolvency practitioner appointed as liquidator. In the recent case of Ward Brothers (Malton) Ltd v Middleton UKEAT/0249/13/RN, it was unsuccessfully argued that a company could also be under the supervision of an insolvency practitioner when no office holder had been formally appointed. A company that was in financial difficulties had a winding up petition issued against it. In the period immediately before the winding up petition was due to be heard, the distressed company agreed to the transfer of its key contracts to another company together with some, but not all, of the employees. Sometime after this transfer took effect, administrators were appointed over the transferring business. The case concerned claims by some of the former employees under TUPE. The transferee company argued that it was not liable to these employees because at the time of the transfer the transferring company was under the supervision of insolvency practitioners and therefore regulation 8(7) applied. The question for the court was what constituted being under the supervision of an insolvency practitioner. During the last weeks of its trading the transferring company had staff from a firm of insolvency practitioners on its premises who were acting in some advisory capacity to the company. These insolvency practitioners were not those eventually appointed; the facts before the court were that the advising insolvency practitioners had made it clear to the company that they did not wish to be appointed office holders in respect of the company. The court held that such a loose arrangement did not constitute supervision of the company by the first set of insolvency practitioners with a view to the liquidation of the company s assets. The insolvency practitioners, although at the premises, were not directing the actions of the company or in control of its assets. The court did not accept that the mere presence of an insolvency practitioner on a company s premises could be supervision for the purposes of TUPE. What is required is the insolvency practitioner s supervision in his capacity as an insolvency office holder, such as liquidator. The court held that this requirement was consistent with s 388 Insolvency Act 1986, which provides that a person acts as an insolvency practitioner in relation to a company when he is its liquidator, administrator etc. 5

6 The case is a useful reminder also to insolvency practitioners who advise a company, or separately its directors, with a view to the company entering an insolvency process, that until that appointment is effected they are only advisors and do not have any powers in respect of the company, its assets and employees. They should be wary of committing the company to transactions in anticipation of their appointment, particularly if that appointment does not ultimately take place. In the light of this case, it is clear that any preappointment transfers of the distressed company s employees will be subject to TUPE. We are seeing a number of situations where companies who are proposing the voluntary appointment of liquidators are granting licences to trade to the prospective purchaser of the business until a sale of the business and assets can be concluded by liquidators on their appointment. In such situations, and in the light of the recent clarification of what constitutes a company being under the supervision of an insolvency practitioner, it will be essential to ensure that, not only are the proposed liquidators protected from any later claim that they have interfered with the company s business and assets but also, any such licence to trade does not inadvertently transfer the employees at this stage thereby losing the prospective purchaser the benefit of the insolvency exceptions to TUPE. If you have any questions about a proposed transfer of a distressed business and how best to deal with its employees, please contact a member of FWJ s Insolvency team. Modinat Kelekun Litigation Debt recovery: a reminder about the use of winding up petitions The issuing of a winding up petition can have a devastating effect on a business, even before the petition is advertised or is heard at court. Once word gets out that a winding up petition has been issued, and in any event once it is advertised, bank accounts can be frozen, debtors may stop paying, supplies may dry up and it may trigger defaults on the company s credit lines. Frequently, and unfortunately, the issue of a winding up petition is a sign of major problems in the business, but on other occasions a frustrated creditor may want to use the strongest weapon in the debt recovery armoury to force the company s attention to the payment of its bills. Although a very effective remedy, it is well understood that a winding up petition should be used carefully for debt recovery; the petition will state that the company is unable to pay its debts when they are due, but the issue may only be the payment of a particular debt and not all debts. There may be reasons, other than the company s solvency, for the debt not being paid. Two recent High Court decisions serve as reminders that where there is a disputed debt, the issuing of a winding up petition may not be the appropriate remedy. The two cases both concern the situation where a creditor had issued a winding up petition to try and collect debts under contracts for the supply of goods. In both cases the debtor applied for injunctions to prevent the winding up petitions proceeding because there was a dispute about the debt. 6

7 In Foxholes Nursing Home Ltd v Accora Ltd [2013] EWHC 3712 (Ch) the court was faced with the very common situation of a buyer claiming that many of the goods the creditor was seeking payment for were faulty or had not been delivered. A statutory demand had been issued for the contractual purchase price less an amount allowed for snagging. The court granted the debtor s injunction on the grounds that there was a substantial dispute over the debt and the court considered that the buyer had a real prospect of success in establishing set-offs or counterclaims that were sufficient to offset the whole amount claimed. Whilst the court did not determine the merits of the parties respective arguments, it did recognise that there is a balancing act between the risk of injustice to a creditor if an unwilling debtor raises unmeritorious objections to avoid paying a debt and the risk of injustice to a debtor if a winding up petition is presented where there is a substantial dispute in respect of the debt. The golden rule is that winding up proceedings should not be brought to pressure a debtor into paying an amount of a disputed debt where the dispute: Relates to the whole of the debt; Is substantial; Is raised in good faith. In Rusant Ltd v Traxys Far East Ltd [2013] EWHC 4083 the court granted an injunction preventing a winding up petition whilst the disputed debt was referred to arbitration in accordance with an arbitration agreement between the parties. It is the policy of the Arbitration Act 1996 to hold parties to the terms of any arbitration agreement they enter and, consistent with that, the court said it would not adjudicate on any dispute that is the subject of an arbitration agreement. In this case, it would appear that it was the existence of the arbitration agreement and not the strength of the debtor s arguments that resulted in the injunction being granted. The judge indicated that on his assessment of the debtor s arguments in the dispute, he would have allowed the winding up petition to continue. This decision is consistent with the principal that any dispute over a debt must be substantial and in good faith as, in certain circumstances the court may permit winding up proceedings to be brought even when the petition is based on a disputed debt. Any debtor seeking to avoid or postpone payment of a debt should remember that the court may resolve a dispute if carrying out a summary judgment assessment in the petition proceedings would be quick and straightforward. To avoid the cost and delay of an unsuccessful winding up petition and injunction application, remember to check the contract under which the debt has arisen. If it contains an arbitration clause then any disputes under the contract must be referred to arbitration before any winding up petition can be presented, even if only a "shadowy defence" has been established. There are a few other points worth bearing in mind in connection with winding up petitions: 1. Be careful what you wish for. If the petition is advertised and heard and a winding up order made, the company ceases to trade. There is no guarantee that all the company s creditors shall be paid in full or that the petition shall lead to the repayment of the debt owed to you. 7

8 2. Issuing a winding up petition is not the start of an automatic process that cannot be stopped; before a petition is heard a creditor must take the further steps of advertising the petition and filing a certificate of compliance. If you are serious about winding up a company, do not forget these procedural requirements. A petition may be dismissed if not advertised properly. 3. Clear up behind you. The payment of any debt that is the subject of a winding up petition does not remove that petition from the company s name. There is a central index of winding up petitions that is easy to search by reference to a company s name. A petition must be dismissed by the court or withdrawn by the creditor after a debt has been paid to be no longer a threat to a company. 4. Failing to withdraw your petition after your debt has been paid could also have unwelcome repercussions on you. In the event that the company still enters liquidation, all payments by the company (including its payment of your debt) are void or could be set aside by a liquidator as a preference unless a court order to the contrary is obtained. 5. Any financier or creditor considering entering into a finance agreement, taking an assignment of debts or security from a company should always first refer to the central index and investigate fully any results. Make enquiry of the creditor and not just the prospect company that the debt has been paid. Has another creditor joined the proceedings or taken over the petition after the first debt was paid? If the petition is not withdrawn following your enquiry, the company should be required to obtain a validation order from the court before making any disposals of its assets after the presentation of the winding up petition to prevent any finance agreement or security document being set aside as void on any subsequent liquidation of the company. If you have any questions about effective debt recovery or you want to issue a winding up petition against a debtor or defend a winding up petition issued against you, contact a member of FWJ s Litigation team. If you are concerned about dealing with a company that has had a winding up petition issued against it, please speak to a member of FWJ s Insolvency team. Employment Law in 2014: What to expect Employment law is one of the most constantly changing areas of law both of key principles and fine detail, which makes it hard for the busy business person to keep up to date, compliant and in tune with the best practices. This month, we look ahead to some of the key changes we expect or, in the case of TUPE, that have already taken effect. [table on next page 9] Employment To support our business clients, we now have a team of employment law specialists who can assist you on any aspect of employment law. Please do not hesitate to contact us if you have any employment related questions. 8

9 Implementation Date 31st January 2014 Area TUPE The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 (SI 2014/16) makes changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246) (TUPE). Changes The key changes are: Clarification that where there is a service provision change, the activities carried out post-transfer must be fundamentally or essentially the same as those activities carried out pre-transfer. A change in location of the workforce post-transfer can be an economic, technical or organisational reason entailing changes in the workforce. This prevents a genuine place of work redundancy from being automatically unfair. The obligation to provide employee liability information to the transferee will be extended from 14 to 28 days before the transfer. Micro-businesses (less than 10 employees) will be allowed to inform and consult directly with affected employees, where there is no recognised union or existing appropriate employee representatives. Collective agreements - transferees may renegotiate terms derived from collective agreements one year after the transfer, provided the changes are no less favourable to the employee. In addition, a transferee will not be affected by any subsequent variations or new collective agreements relating to the transferor following the transfer. The Trade Union and Labour Relations (Consolidation) Act 1992 will be amended to make clear that consultation on collective redundancies can start before the transfer provided the transferor and transferee agree and the transferee has carried out meaningful consultation. 9

10 Implementation Date Area Changes 1st April 2014 Pensions The time period for employers to auto-enrol eligible jobholders into a qualifying pension scheme increases from one month to 6 weeks. 6th April 2014 Statutory maternity, paternity and adoption pay Increases from to per week. ACAS Introduction of mandatory conciliation The Enterprise and Regulatory Reform Act 2013 makes it a requirement that claimants must lodge details of their proposed employment tribunal claim with ACAS before initiating proceedings. ACAS will offer pre-claim early conciliation with a conciliation officer for a period of one month. Was scheduled for 6th April 2014, but date has been revised and not yet confirmed Flexible working The right to request flexible working is extended to all employees with 26 weeks service, and not just those employees who have children or are carers. The statutory procedure for dealing with flexible working requests is replaced with a duty to deal with requests in a reasonable manner. Discrimination Abolition of discrimination questionnaires The procedure by which an individual is able to obtain information from his or her employer about discrimination, and then subsequently use that information as evidence at an employment tribunal hearing. Financial penalties Tribunals will have the power to impose a financial penalty on losing employers of 50% of the value of the award, with a lower threshold of 100 and an upper limit of 5,000. It is not automatic. Statutory Sick Pay Increases from per week to per week. Abolition of the strict record keeping requirements, however employers will still be required to maintain records but in a more flexible way and for a shorter duration. 10

11 Implementation Date Area Changes Spring 2014 Sickness Introduction of a new government funded independent assessment service to assess ill health. The aim is to introduce this in April, but it may be towards the end of Its remit will include free assessment by occupational health professionals for employees who are off sick for four weeks or more, and advice for employers on how to assist employees who are long term sick to return to work. October 2014 National Minimum Wage Potential rise in national minimum wage depending on recommendations of the Low Pay Commission and the economic climate. In 2014 Equal Pay Expected that employment tribunals will be required, in accordance with the Enterprise and Regulatory Reform Act 2013, to order pay audits where an employer is found guilty of breaching the equal pay provisions under the Equality Act Francis Wilks & Jones LLP 6 Coldbath Square London EC1R 5HL Modinat Kelekun Sally Bradshaw Tel: Fax: DX No Clerkenwell Sally Bradshaw Senior Associate sally.bradshaw@franciswilksandjones.co.uk info@franciswilksandjones.co.uk 11