Part 5: Other provisions about safety standards, etc. Remediation of Certain defects Section 125 – Meeting remediation costs of insolvent landlords Background
The explanatory note to section 122 discusses how Schedule 8 protects leaseholders from costs associated with remediating historical building safety defects, and imposes liability on landlords under leases of relevant buildings, in connection with costs associated with relevant defects that are not recoverable from leaseholders.
	It is important that, where costs cannot be recovered from leaseholders, funding is available to ensure the timely remediation of defects. Section 125 is intended to secure funding for remediation should a company with an obligation to remediate or pay for the remediation of relevant defects go through the insolvency process.
	Insolvency is the process by which a company stops doing business. The insolvency process in the United Kingdom is governed by the Insolvency Acy 1986. There are a number of different ways a company can be "wound up" which are covered by the Act including compulsory liquidation, where a company cannot pay its debts; and voluntary liquidation, where a company can pay its debts, but its directors choose to close it down. Section 125 covers all these processes.
	When a company is wound up, an insolvency practitioner will be appointed to manage the insolvency process. There are different types of insolvency practitioner depending on the type of insolvency process the company is going through – these are set out in section 388 of the Insolvency Act and include liquidators and administrators.
	The explanatory notes to sections 121 and 124 discuss how it is common for freehold interests in multi-occupied residential buildings to be held as thinly capitalised special purpose vehicles which are part of much bigger group structures, which are often well-capitalised. Section 121 defines "associated company" for the purposes of this section.
	Section 125 mitigates against the use of the insolvency process for freeholders and landlords to avoid responsibilities to pay for remediation of defects for which they are liable under Schedule 8 of this Act. In the process of winding up a company, it allows the insolvency practitioner to apply to the court to make an order requiring companies associated with the landlord to make contributions in connection with the remediation of relevant defects.
	The order can be made in one of two ways. First, it can require an associated company to contribute directly to the assets of the company being wound up. However, if the company has debts not related to the remediation of relevant defects, the contribution would in these circumstances preferentially be directed towards meeting the company’s debts, and this would not secure the remediation of the building. Therefore, the second way in which the order can be made allows the court to order that the associated company must make specified payments directly in connection with the remediation of those defects. This will ensure that the payments made by the associated company pay towards remediating the building.
	Similar to the provisions at section 124, the court can make an order under section 125 if it considers that it is just and equitable to do so. This is intended to ensure fairness in proceedings while giving the court a wide decision-making remit which it is expected will allow it to take all appropriate factors into account when determining whether an order should be made, including the wider public interest in securing the safety of buildings, as well as the rights and interests of the individual against whom an order might be made.
Example
A freeholder for a relevant building has a liability to pay for the remediation of certain defects in a relevant building. The company which owns the freehold goes insolvent. An insolvency practitioner is appointed to oversee the insolvency process. Because the building has a number of defects which are yet to be remediated, the insolvency practitioner applies to the court for an order against the parent company of the freeholder. The court considers that it would be just and equitable to make the order against the parent company and orders the company to make payments to remediate the defects for which the freeholder is responsible.