What to do if your business tenant is bankrupt
Rob Hastie, 3rd June, 2013
A person can either make themselves bankrupt or be bankrupted by a creditor. The bankruptcy order is made at the County Court and then shows up on the Insolvency Service website a week or so later. A notice is also placed in the local papers.
The effect of bankruptcy is that there is an automatic assignment of the lease from the bankrupt tenant to the ‘Official Receiver’, a civil servant who works for the Insolvency Service.
The tenant no longer has a legal interest in the lease. The Official Receiver will decide whether to appoint a ‘Trustee in Bankruptcy’ or become the Trustee himself.
This will depend whether there is enough money in the Bankrupt’s estate to pay for an external Trustee.
If the premises are licensed to sell alcohol, then the landlord should take immediate steps to secure the Premises Licence, which lapses on the bankruptcy.
If the premises are unoccupied or the bankrupt tenant is co-operative, a landlord can terminate the lease by re-entering without needing the permission of the court or of the Official Receiver.
If the bankrupt tenant is in the premises and won’t co-operate, then the best option is to get the Trustee to ‘disclaim’ the lease. This disclaimer brings the lease to an end.
The landlord can encourage the Trustee to disclaim by serving on them a ‘notice to elect’, which gives them 28 days to decide what they want to do.
If they don’t disclaim within that period then they become personally liable for the rent. The notice must be sent by recorded delivery.
The only situation in which a Trustee will not disclaim will be if he thinks the lease has an assignment value.
If, after the lease has been disclaimed, the bankrupt tenant still won’t leave then you can start ‘Squatter Eviction’ proceedings against them.
These type of proceedings take 2-3 weeks to get to court and the order is usually for possession to be given immediately. So they are much quicker than forfeiture proceedings.
The position is more complicated where you have two tenants and only one of them is bankrupt. You will need specific advice from a solicitor if this applies to you.
Unless the landlord has instructed bailiffs to seize the fixtures, fittings and stock prior to the bankruptcy, once someone is bankrupt those goods become the property of the Official Receiver or Trustee.
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