Section 125, Building Safety Act 2022 – Meeting remediation costs of insolvent landlord

(1) This section applies if, in the course of the winding up of a company which is a landlord under a lease of a relevant building or any part of it, it appears—

(a) that there are relevant defects relating to the building, and

(b) that the company is under an obligation (howsoever imposed) to remedy any of the relevant defects or is liable to make a payment relating to any costs incurred or to be incurred in remedying any of the relevant defects

(2) The court may, on the application of a person acting as an insolvency practitioner in relation to the company, by order require a body corporate or partnership associated with the company—

(a) to make such contributions to the company’s assets as the court considers to be just and equitable, or

(b) to make such payments to a specified person as the court considers to be just and equitable for the purpose of meeting costs incurred or to be incurred in remedying relevant defects mentioned in subsection (1)(b).

Section 124(4) applies for the purposes of this section.

(3) An order may be made where proceedings for the winding up of the company were commenced before (as well as after) the coming into force of this section.

(4) In this section—

“act as an insolvency practitioner” has the meaning given by section 388 of the Insolvency Act 1986;

“associated”: see section 121;

“the court” means a court having jurisdiction to wind up the company;

“partnership” has the meaning given by section 121;

“relevant building”: see section 117;

“relevant defect”: see section 120;

“specified” means specified in the order.

Comes into force on 28 June 2022

Applies to England and Wales.

This section moves us from the Tribunal to the court.

It concerns the winding up of a landlord company and the power of the court in relation to bodies corporate and partnerships that are associated with it.

Subsection 1 describes the circumstances in which an application to the court may be made.

The application involves three elements:

• A landlord;
• Defects;
• An insolvency practitioner.

The landlord is quite tightly defined:

• It must be a landlord under a lease of a relevant building or any part of a relevant building;
• It must be a company. In this country that will generally be a company registered at Companies House, and limited by guarantee or by shares.
• It must be “in the course of winding up”.

If the landlord ticks all of those boxes, the spotlight switches to the defects.

The defect(s) must:

• Be “relevant defect(s)” within the meaning of section 120. The definition of “relevant defect” does not include defects in relevant buildings, but of course the fact that the landlord must be a landlord of a “relevant building” means that only relevant defects in relevant buildings will be – erm, relevant – here;
• Relate to “the building”. Grammatically, “the building” refers to the “relevant building” of which the company is the landlord. Again therefore, we are looking only at relevant buildings, as defined in section 117.

Once those defects have been drawn, they must be connected to the landlord.

The connection is achieved if the landlord company “under an obligation (howsoever imposed) either:

• To remedy any of those defects, or
• To “make a payment relating to any costs incurred or to be incurred in remedying any of the relevant defects”.

Two phrases need unpacking.

First up: “an obligation (howsoever imposed)”. What a joy it must be to be able to draft such a wide provision.

“Howsoever imposed” covers a myriad of eventualities. Those that spring immediately to mind include:

• An obligation under the lease;
• An obligation under a separate written agreement, including a settlement agreement at the Tribunal or in court;
• A court or Tribunal order;
• Under an Act of Parliament, including the Building Safety Act 2022 itself. The Act empowers judicial bodies and, potentially, the Secretary of State, to make all sorts of orders. I have covered remediation contribution orders; there are also:
• building liability orders under section 130;
• orders for damages under sections 148(6) and 149(6);
• costs contribution orders under sections 153 and 154.

Secondly, “…any costs incurred or to be incurred…”.

I have unpacked this phrase here.

The only person who may apply to the court under section 125 is “a person acting as an insolvency practitioner”.

Subsection 4 defines an insolvency practitioner: it “has the meaning given by section 388 of the Insolvency Act 1986”.

I have set out the definition contained in section 388 of the Insolvency Act 1986 at the bottom of this post. It is long. But it is there.

The company and the insolvency practitioner are knitted together by the requirement in subsection 2 that the practitioner must be acting as such a practitioner “in relation to the company”. In other words, a third party cannot instruct an insolvency practitioner to apply to court on their behalf, simply because that person is an insolvency practitioner.

By subsection 2, the respondent to an application made by an insolvency practitioner will be “a body corporate or partnership associated with the company”.

The effect therefore of such an application is that the leaseholders will not be involved in the proceedings at all: they will be between the insolvency practitioner on behalf of the landlord company on the one hand, and the body corporate or partnership associated with the company on the other.

You can read more about bodies corporate, partnerships and the meaning of “associated with” in my post about section 121 (Associated persons).

As I read subsection 3, it is not about the process of winding up a company and the stage in the winding up when an insolvency practitioner may apply to the court for an order.

It is a subsection that empowers an insolvency practitioner to make an application to court, even if “proceedings” for the winding up of the company were begun before section 125 came into force.

In other words, even if proceedings for the winding up of a company began before 28 June 2022, an insolvency practitioner is still entitled to make an application to court for an order against a body corporate or a partnership associated with the company.

On an application by an insolvency practitioner, the court may make one of two orders. It may order the body corporate or partnership to either:

• Make “such contributions to the company’s assets as the court considers to be just and equitable”, or
• Make “such payments to a specified person as the court considers to be just and equitable for the purpose of meeting costs incurred or to be incurred in remedying relevant defects mentioned in subsection (1)(b)”.

Contributions to the company’s assets

The first power is a wider one. It requires a contribution from the body corporate or partnership to the assets of the company that is being wound up.

It is does not require the insolvency practitioner to have identified the appropriate recipient of the funds before making the application.

Payments to a specified person

The second power is – logically therefore – the narrower power. It is very (very) similar to the definition of “remediation contribution order” in section 124(2).

Here is the text of section 125(2)(b):

The court may… require a body corporate or partnership associated with the company—

• to make such payments to a specified person as the court considers to be just and equitable for the purpose of meeting costs incurred or to be incurred in remedying relevant defects mentioned in subsection (1)(b).

Here, for comparison, is the text of section 124(2), defining remediation contribution order:

… an order requiring a specified body corporate or partnership to make payments to a specified person, for the purpose of meeting costs incurred or to be incurred in remedying relevant defects (or specified relevant defects) relating to the relevant building.

The key difference is the inclusion in section 125(2)(b) of the “just and equitable” test, lamented here.

The nuts and bolts of payment

The mechanics of payment are covered quite simply by referring the reader to section 124(4), although it overlaps in several respects with section 125(2).

You can read my observations on section 124(4) here.

Section 125 ends with seven definitions, four of which occupy a full section of the Building Safety Act 2022.

“act as an insolvency practitioner” has the meaning given by section 388 of the Insolvency Act 1986;

“associated”: see section 121;

“the court” means a court having jurisdiction to wind up the company;

“partnership” has the meaning given by section 121;

“relevant building”: see section 117;

“relevant defect”: see section 120;

“specified” means specified in the order.

(1) A person acts as an insolvency practitioner in relation to a company by acting—

(a) as its liquidator, provisional liquidator, administrator, administrative receiver or monitor, or

(b) where a voluntary arrangement in relation to the company is proposed or approved under Part I, as nominee or supervisor.

(2) A person acts as an insolvency practitioner in relation to an individual by acting—

(a) as his trustee in bankruptcy or interim receiver of his property or as trustee (or interim trustee) in the sequestration of his estate; or

(b) as trustee under a deed which is, in Scotland, a trust deed for his creditors; or

(c) where a voluntary arrangement in relation to the individual is proposed or approved under Part VIII, as nominee or supervisor

(d) in the case of a deceased individual to the administration of whose estate this section applies by virtue of an order under section 421 (application of provisions of this Act to insolvent estates of deceased persons), as administrator of that estate.

(2A) A person acts as an insolvency practitioner in relation to an insolvent partnership by acting–

(a) as its liquidator, provisional liquidator or administrator, or

(b) as trustee of the partnership under article 11 of the Insolvent Partnerships Order 1994, or

(c) where a voluntary arrangement in relation to the insolvent partnership is proposed or approved under Part I of the Act, as nominee or supervisor.

(2B) In relation to a voluntary arrangement proposed under Part I or VIII, a person acts as nominee if he performs any of the functions conferred on nominees under the Part in question.

(3) References in this section to an individual include, except in so far as the context otherwise requires, references to any debtor within the meaning of the Bankruptcy (Scotland) Act 2016.

(4) In this section—

“administrative receiver” has the meaning given by section 251 in Part VII;

 “company” means—

(a) a company registered under the Companies Act 2006 in England and Wales or Scotland, or

(b) a company that may be wound up under Part 5 of this Act (unregistered companies);

“monitor” has the same meaning as in Part A1 (moratorium); and

“sequestration” means sequestration under the Bankruptcy (Scotland) Act 2016.

(5) Nothing in this section applies to anything done by—

(a) the official receiver; or

(b) the Accountant in Bankruptcy (within the meaning of the Bankruptcy (Scotland) Act 2016)