HM Government’s efforts to protect business and individuals as a result of the Covid-19 pandemic and the lockdown have resulted in a confused situation where many lenders are unsure of what options remain open to them to enforce their security.
This article seeks to clarify the situation and to explain what options remain available to lenders seeking to recover monies/enforce outstanding loans which may well have been in default long before the impact of Covid-19.
This note will be split into residential and non-residential security and we will not deal with landlord and tenant enforcement restrictions as these are subject to a raft of Government protections all of their own. We have written about that here
In this situation the type of lender matters:
FCA regulated lender:
FCA guidance precludes regulated lenders from issuing or pursuing possession proceedings until after 31 October 2020. Therefore proceedings cannot be issued or re-listed until after that deadline.
Owner-occupier borrowers – The new CPR Part 55.29 extended the current stay of possession proceedings until 23 August 2020. Please note that this does not prevent possession proceedings being issued, it just means they are stayed once issued until after that date. We have advised lenders to think seriously about sending proceedings to the Court for issue now to be ahead of the inevitable rush when the stay comes to an end. Courts tend to deal with their matters in the order they are received so this could result in a much earlier hearing date.
Buy-to-let borrowers – It is still possible to appoint Receivers to take control of buy-to-let properties and collect rent from tenants, if there are any. If the borrower is a company or LLP and the security is in the form of a debenture there is also the option to appoint administrators. If the property is occupied by the borrower or their family, usually in breach of the loan terms, the restriction on possession proceedings against owner occupiers set out above would apply.
Non-residential, commercial and development security
It remains possible for lenders to appoint receivers and/or administrators. There has been no new restriction imposed which currently impacts on these options and many lenders are pursuing this option.
The Corporate Governance and Insolvency Bill that is passing through Parliament at present will introduce the ability of a borrower to seek a moratorium to allow itself some breathing space. Once this legislation is in force if a borrower does successfully seek such a moratorium a lender will not be able to enforce a floating charge, such as a debenture, during the moratorium period but will still be able to seek permission of the Court to appoint a receiver under its fixed security. Please note that this is not blanket ban on the enforcement of security and only applies if the borrower obtains a moratorium.
Lenders still have the option to make demand against guarantors and this is often a useful way to exert pressure on the people behind a corporate or LLP borrower.
For more information or to discuss a specific situation please contact Chris Wright or one of the other members of our banking litigation team.
This update is for general purpose and guidance only and does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered. No part of this update may be used, reproduced, stored or transmitted in any form, or by any means without the prior permission of Brecher LLP.