In the third part of our series of articles where we consider difficult times for retail tenants, we now look at the various options when things go really wrong.

If a tenant continues to find himself in financial difficulty and has considered all of the options raised by us in our previous two articles, then it may be time for urgent advice to be taken from either a solicitor or an insolvency practitioner. This is particularly the case even where the tenant is a limited company. Directors should be aware that it is possible to make directors personally liable for a company’s debts in certain circumstances. Indeed, to carry on trading if a director knows that a company is insolvent is a criminal offence. Consequently, when directors know or sense that a company “cannot meet its debts as they fall due” – the test for an insolvent company – measures need to be taken and quickly.

In relation to individuals who are tenants, then there are really only three options:

1. A very informal arrangement is made with creditors, including a landlord, where the creditors simply allow the individual tenant further time to pay its outstanding debts by way of a documented payment plan.
2. An individual voluntary arrangement, or IVA. With the assistance of an insolvency practitioner, the individual contacts all of his creditors and shows how, if he is allowed to continue to trade, the creditors are likely to realise a greater sum than were he to be made bankrupt. If 75 per cent. of the creditors vote in favour of the IVA, then the IVA binds all creditors. Any debts that fall due after the date of the IVA fall due in the normal way.
3. The third option is, of course, bankruptcy. This is now for a period of only a year although the period can be extended where the debtor has been reckless in relation to financial management.

In relation to companies, they have a number of options; some of which are as follows:

1. A CVA, really very similar to an IVA, allowing a company to continue to trade.
2. Administrative receivership. This is where a third party, often a bank who has lent a company money, appoints an administrative receiver to run the company on behalf of that lending bank on the basis that it feels its debt will not be satisfied.
3. Administration. This is where an application is made to the court by the company for an administrator to be appointed to run the company to allow the company time to consider the best way forward. The route forward could include a CVA or a liquidation. It has to be thought that the freezing order imposed on all creditors’ actions during the period of the administration will benefit the company and allow it time to consider the best way forward.
4. Liquidation. The ultimate disaster scenario. Whether by a resolution of the company directors or an application to the court for a winding up order by one of the creditors, a liquidator can be appointed to close the business down and settle outstanding debts as best as it is able.

It is, however, extremely important to ensure that you get the best and most appropriate advice to your particular tenant business. For example, if a subsidiary is a tenant company, then there may be tax advantages or disadvantages of dealing with the matter in a certain way. Advice should therefore be sought as early as possible from either a solicitor or insolvency practitioner.