Wilko is disappearing from the high street after 93 years of trading. There are various reasons for the demise of the high street giant, but this article looks at the process of administration and what a landlord might want to look out for.
Notice of Intention to Appoint an Administrator
The first formal step in Wilko’s administration was taken on 3 August 2023 when it filed a notice of intent to appoint an administrator. While the company is required to inform all creditors of its decision, where the tenant in question is a national retailer the news is picked up and reported by the press. In Wilko’s case there had been rumours of insolvency for a few weeks before this became official.
The notice of intent gives a company breathing space to turn around its finances whilst rescue options are discussed. A notice of intent creates a 10-day interim moratorium during which no action can be taken by creditors without permission of the court.
For landlords, this no means any debts due such as rent, service charge or insurance cannot be pursued. This covers all enforcement action from the use of CRAR to issuing debt proceedings or forfeiting the tenant’s lease, as well as enforcing security such as drawing down on a rent deposit. This is unless an application is made for court’s permission to do so, but such permission is unlikely to be forthcoming.
Appointment of Administrators
Following its notice of intention, Wilko subsequently appointed PricewaterhouseCoopers (PwC) on 10 August 2023 as its administrator. PwC then took over the running of the company and sought rescue deals with potential buyers.
Whilst in administration, where the company occupies premises for the benefit of the administration rents are paid by the administrator as an expense of the administration. Landlords should check for incoming rent to ensure this is being paid. Administrators will often ask landlords to agree a surrender where premises are redundant for the company, they do not however have the power to disclaim the lease. But in practice as there is a further moratorium once the administrator is appointed, the landlord’s remedies are limited.
During an insolvency process, landlords should be on the lookout for pre-pack administration sales. This is where a sale of the business is agreed before administrators are appointed. As part of this process, leases are automatically assigned to the buyer. Landlords should monitor this closely as a request for consent is not usually sought. If a lease has an alienation provision which only allows assignment subject to landlord’s consent, then the pre-pack sale could give raise to a forfeiture event, i.e. an unlawful assignment has occurred.
An unlawful assignment is a ”once-and-for-all” breach so if the landlord acts as if the lease was continuing (e.g. by accepting or demanding rent), then the right to forfeit the lease for the unlawful assignment will be waived and lost.
Where there is potential for a pre-pack administration, a decision should be made on whether to put in place a rent stop to prevent waiving the right to forfeit. At the very least, the position needs to be monitored and a section 146 notice served immediately after the assignment has taken place to protect the landlord’s position.
Of course, if a landlord does forfeit, they will be left with an empty unit and after three months, the liability for business rates. Forfeiture may therefore note be the landlord’s preferred option. Even then, the position should be monitored carefully to avoid for example the buyer/assignee acquiring security of tenure under the Landlord & Tenant Act 1954.
An Unsuccessful Outcome
Unfortunately, all bids for Wilko were unsuccessful and the chain collapsed. The result means all stores will close with a huge loss of jobs. There is no longer an ability to take enforcement action for outstanding rents.
If there are any remaining funds held by Wilko which can be distributed, secured creditors will receive preferential treatment. A landlord however is an unsecured creditor and so unlikely see any meaningful return.
Other high street tenants such as Poundland and B&M are purchasing the leases of some of the Wilko stores. As above, consideration needs to be given to the right to forfeit or whether these incoming tenants are wanted.
There are now two potential avenues for Wilko:
Either PwC will dissolve the company if there are unlikely to be returns for the creditors. If this route is taken, all assets (including any lease) will vest in the Crown. If PwC exercise this option, considering a surrender and discussing this with PwC may be advisable particularly where the lease is registered or noted on the landlord’s title, otherwise the landlord will be required to deal with the Treasury Solicitor to invite them to disclaim the lease so that it can be formally terminated (and the premises relet).
Alternatively, the company will enter liquidation. At this stage, the moratorium ends, and the landlord can now forfeit the lease and seek to re-let.
