How are the interests of insolvent tenants balanced with those of their landlords, asks Christopher Warenius
In the current economic climate, landlords are frequently faced with tenants in financial difficulty. Often these tenants may resort to formal insolvency procedures such as bankruptcy. Formal insolvency mechanisms are designed to provide a degree of protection both for the insolvent party and for their unsecured creditors, who may have competing claims. Landlords can be among the most vulnerable of a tenant’s unsecured creditors because the tenant is in their property and it is difficult to end an ongoing contractual relationship with the financially unsound party. The question often arises as to whose interests take precedence in this situation.
Section 285(3) of the Insolvency Act 1986 (IA 1986) provides such a mechanism. It restricts legal recourse against the insolvent party once a bankruptcy order has been made by providing that: (3)…no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall—(a) have any remedy against the property or person
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