what are the implications of a bankrupt Landlord

waveydave

Hi all - Im after a bit of advice and thought some of you may be able to give it to me.

I rent a cafe and my landlord is talking of going bankrupt / IVA
Unfortunatly i do not have a water tight contract as he is a friend and i was doing him a favour by taking over the cafe with a gentlemans agreement that in 12 months time we would sell the shop and split the proceeds 50 / 50

Anyway he is in financial strife big time, im not sure wether all the things in teh cafe are being paid off, coffe machine, equipment on HP etc), neither him nor his wife are earning anything other than the rent i give him and his house sale has fallen through leaving him not having paid his mortgage for months etc.

Wha are the implications to me - If he goes bankrupt i assume they will take his business off him - would i get consulted - would the OR make allowances as i was renting ?

If he did an IVA or DMP what would happen if the shop was sold in 12 months time - Would they automatically take the proceeds from him and i lose out on any share as its not set in a contract. If he did go on an IVA and then stopped paying it - would that effect the cafe ?

Sorry for the questions but i really havent a clue what to do - Ive worked hard for two months building this business up we are starting to get a good flow of customers and make a bit of cash and now it appears i could lose everything because - A - he hasnt paid any of his debts, and B - i was foolish enough to take his word and not get a solid contract.

Any advice greatly recieved

CCCS_Matthew

Hi there,

If your landlord has equity within the cafe that he has then it could be included in his bankruptcy. Do you know if he trades as a limited company or a sole trader?

In reference to an IVA, he would always have to notify the Insolvency Practitioner if he came into a substantial amount of money (if he was to sell his business for example). It would be difficult to say whether you would be entitled to any of that money due to the fact you have no written proof that you own half of the cafe. It is important to know as well that if an IVA failed, the creditors would have the ability to make him go bankrupt.

A DMP would work slightly differently as there is no legal contract between him and the creditors so any money he came into during the term of the DMP would mean he could do what he likes with it.

If he's unsure about how his business would effect his options it maybe worth speaking to business debt line, they maybe able to give more specific advice.

Business Debt Line: 0800 197 6026

Hope this helps a little, feel free to ask any other questions.

Regards,
CCCS

waveydave

Thanks matthew, Pretty much confirmed what i thought unfortunatly.

I'm sure ill be back with some questions as i think of them but thats given me enough info to start with

Oh - one question - how would it effect his bankrupcy or iva if i was to buy the cafe off him for a nominal fee - for instance i give him £1k to buy the business off him and then a few weeks later he goes bankrupt or goes for an IvA obviously id get solicitors to write up contracts of sale etc but im just wondering if the OR or Practitioner could take the business off Me if it was all in my name?

rog2

Hi Dave - I would think that, if he decides to go for bankruptcy so soon after 'selling' you his half of the business, the OR may view this very suspiciously. Even more so if he sold his share for 'below the market value'.
I think it would be worth talking to a solicitor, or possibly business link, to get the true legal overview of such a move.
Cheers
rog2

CCCS_Matthew

rog2 is correct. Any assets sold up in the build up to bankrutpcy would be taken into account, which would lead to restrictions such as the OR reclaiming the cafe from yourself. I would certainly be inclined to point him in the direction of Business Debt Line or anyone else that can give him advice regarding his business before making any big decisions on dealing with his situation

Take care
CCCS

waveydave

Cheers guys

Think from my side of things ill have to put this down to experiance as it appears that i wont gain anything but will lose out

Fortunatly i havent invested a great deal in the business as it needed time and attention as opposed to capital so i shouldnt lose much.

Finally - if i had a proper contract in place - written up by a solicitor - would i be better off in terms of keeping the business running, not gettin everything he owns or rents taken off me and keeping any profits etc if he was to go bankrupt ?

waveydave

Oh and just to clarify things we are not "Partners", I rent the cafe off him along with equipment and tables etc and i am registered as a self employed / sole trader. he is in effect my landlord.

rog2

waveydave wrote: »

Oh and just to clarify things we are not "Partners", I rent the cafe off him along with equipment and tables etc and i am registered as a self employed / sole trader. he is in effect my landlord.

If he does declare bankruptcy, you COULD possibly apply to keep 'renting' from the OR/Trustee, but they will be more interested in realising, ie selling, their assets. You COULD make an offer to 'purchase' these assetts from OR. Does your 'landlord' own the building, or is it currently rented? If it is rented, then you COULD make an offer, again to OR, to take over the lease.
Sorry Dave - lots of 'COULDS' but can't give you any definites - sorry.

waveydave

rog2 wrote: »

If he does declare bankruptcy, you COULD possibly apply to keep 'renting' from the OR/Trustee, but they will be more interested in realising, ie selling, their assets. You COULD make an offer to 'purchase' these assetts from OR. Does your 'landlord' own the building, or is it currently rented? If it is rented, then you COULD make an offer, again to OR, to take over the lease.
Sorry Dave - lots of 'COULDS' but can't give you any definites - sorry.

A "could" is better than nowt Rog

Im at the point at the moment where i cant get a deffo answer from my landlord on what he is going to do, so im trying to weigh up my odds so im in a better position to know wether to get out now whilst i havent lost cash or to hang on and see if i can come out on top off this in a better poition than before - which would ideally mean me having complete control of the cafe and not having to pay rent to him each month.

Like you say - lots of if's and but's and a big quandry

rog2

If you can afford to hang on, you will be in a better position to negociate with OR. The OR is much more likely to accept a lower offer for all equipment/furniture as a 'job lot' as he will save on transport and auctioning fees.