This blog is prompted by the latest in a long sorry line of
failing companies ending up in administration. "Dwell"
(the furnishing retailer) appointed administrators last week,
somewhat unusually just before the upcoming quarter day. The list
of large retail presences on the High Street which have gone under
since the demise of Woolworths in 2008 makes for very depressing
reading.
It has meant that hundreds of investment landlords and their
professional advisers have been faced with the (usually) bad
consequences of administration, as have many thousands of
employees. This blog deals with the administration itself and next
week we will look at the practical consequences for the landlord
when the grim administrator reaper calls.
Insolvent tenants
Administration is now by far and away the most common way in
which a corporate entity fails i.e. becomes insolvent. There
remain other routes to this state but the vast majority of tenant
occupiers will fail using this mechanism.
The one common theme for any such step is that the tenant is
insolvent, which is always bad news for the landlord. The covenant
upon which he is relying has gone, there will probably be issues
relating to arrears of rent and there will be further complications
around the exit of the occupier and reletting.
In practical terms, once an administrator is appointed a creditor
is unlikely to care how the tenant came to this position or who has
made the appointment: what it will need to know is that all
enforcement steps by any creditor are automatically stopped and
only in unusual circumstances can they be restarted.
Creditors and landlord – where do they stand?
All creditors are therefore left in the hands of the
administrator to deal with the process of either saving the tenant
company, or more usually, making the most orderly disposal as it
can of the assets of the tenant company.
The legislation assumes that the administration route, where
everybody stands to one side whilst the administrator does its
thing, is the most beneficial. Therefore, there is little
point usually in creditors becoming overly involved in the process,
unless they can see a specific benefit for them in so doing.
What does this mean for the landlord? You cannot enforce any
of the usual rights of the landlord to distrain, forfeit, issue
proceedings for recovery of rent or possession of the
premises. Quite often the first the landlord will hear of the
problems of his tenant is through the newspapers and invariably at
that point it is too late to do anything other than await the
pleasure of the administrator. As I will discuss next week,
it may be very quick process if a "pre-pack" has already
been pre-planned.
So at this stage when the news breaks, the landlord has little
leverage or manoeuvrability and must wait for the next stage. All I
would say is that if they had not already got a very keen idea of
the desirability of the unit on a relet and at what rent, then they
should find that out pretty quickly. It will have a key
impact on how the administrator or buyer approaches the unit and
how a landlord will react to that approach.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.