Commercial Landlords Beware

A recent High Court judgment highlights the court’s reluctance to make an order winding up a company for the non-payment of a debt, where the circumstances of that debt are entirely attributable to the on-going Covid-19 restrictions. The decision of Butler J. In the Matter of Lestown Property Limited and In the Matter of the Companies Act 2014 was handed down on 22 July 2021. The court refused to wind up the company in question.

The dispute arose between the tenant company who operated a Leisureplex in Charlestown Shopping Centre in Dublin. The tenant had not paid rent due under the lease since the introduction of restrictions on public health grounds on 8 April 2020. These restrictions, at various times, required the closure of the premises or placed a limit on the number of customers that may be present.

The tenant claimed that certain rent suspension provisions in its lease should be applied which entitled it to withhold rent for this period. The Companies Act contains provisions that permit the High Court to order that a company be wound up in certain circumstances where it is unable to pay its debts. The monetary threshold to bring a petition was €50,000 at the time of the application.

Long standing case law provides that a court should not make the order where the debtor has demonstrated that there is a bona fide, that is to say, a genuine dispute regarding the liability for the debt claimed.

Here, the tenant argued that it did not have to pay any rent at all for the relevant period. The lease contained a rent suspension clause where, if the tenant remained up to date on service charge and insurance payments, then it would not have to pay rent if the premises were destroyed or damaged from an insured risk. The tenant claimed that the premises had been damaged and rendered unfit for use or occupation arising from the pandemic.

The crux of the issue to be determined was twofold:

1. Whether the court was satisfied that the tenant had bona fide and substantial grounds for disputing liability for the amount claimed (the court did not have to determine if the tenant was correct that the rent suspension provisions applied); and if not

2. Could the petitioner satisfy one of the grounds under the relevant provision in the Companies Act 2014 upon which a company may be wound up

Importantly, the court noted that while a petitioner proving the above two grounds would normally be sufficient for the petition to succeed, the court has an overriding discretion to refuse the petitioner’s application.

Ultimately, the court refused to wind up the tenant company. In her judgment, Butler J. noted that even if she was satisfied that the company should be deemed unable to pay its debt; she gave serious consideration to her discretion to refuse the order in any event.

The court determined that there was a bona fide dispute between the parties over the operation of the suspension clause in the lease. The court did not need to determine whether either party was correct in their arguments. Instead, the court was satisfied based on the submissions of the parties that there was a real dispute over the interpretation of the clause and the insurance policy.

The court stated that, even if there was not a bona fide dispute, it would use its discretion to not wind the company where the events that had led to the non-payment of rent were outside the control of the parties, with the circumstances of the pandemic being extraordinary.

This case is a timely reminder that the court has an overall discretion to refuse to make a winding up order even where the amount owed is above the statutory monetary threshold. The judgment also demonstrates the court’s reluctance to order the winding up of a company where the debt in question arose on account of Covid-19 restrictions.

For more information, contact a member of our Real Estate or Dispute Resolution team.

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