Covid 19: Injunction Granted on the basis of the Corporate Governance and Insolvency Bill

On 2 June 2020 in the case of Re: A Company (injunction to restrain presentation of petition [2020] EWHC 1406 (Ch), the High Court granted an injunction to restrain the presentation of a winding up petition on the basis of prospective changes to the Insolvency Act 1986 to be made by the Corporate Insolvency and Governance Bill (“the Bill”).

Background

The Bill was published by the Government on 20 May 2020. If passed in its current form, the Bill will, amongst other changes to the insolvency regime, enact short-term restrictions on the presentation of debt-based winding up petitions against companies. These restrictions are in response to the current coronavirus pandemic and are intended to bring some respite for companies currently struggling to pay their debts.

The restrictions on presenting debt-based winding up petitions provide that:

• No winding-up petitions are to be presented on or after 27 April 2020 if they rely upon statutory demands served between 1 March 2020 and 30 June 2020 (or one month after the Bill comes into force, whichever is the later).
• No winding-up petitions are to be presented between 27 April 2020 and 30 June 2020 (or one month after the Bill comes into force, whichever is the later) unless the creditor has reasonable grounds for believing that:
• coronavirus has not had a financial effect on the company; or
• that the company would have become unable to pay its debts even if coronavirus had not had a financial effect on the company.
• The Court may order the winding-up of a company only if it is satisfied that the relevant ground relied upon would have applied even if coronavirus had not had a financial effect on the company.

The Bill is expected to become law by the end of this month, although in its current form the restrictions on presenting winding-up petitions are retrospective, to be regarded as coming into force on 27^th April 2020.

The Bill also contains provisions for voiding winding-up orders made before it comes into force but which would not have been made had it been in force at the time.

Facts of the Case

The application was an urgent application by a company, “D”, to restrain the presentation of a winding up petition. D was a high street retailer and was a tenant of a retail unit owned by its landlord, “C”.

C had filed a winding-up petition in relation to unpaid rent and service charges which had recently fallen due under the lease. However, C did not pay the Court fee, so the petition had not been “presented”. On 15 April 2020, C had served a statutory demand in relation to these arrears.

In correspondence between the parties’ Solicitors, C had refused to give an undertaking not to present the petition. D therefore applied for an injunction to restrain the presentation of the petition on various grounds. The Court invited counsel for D to concentrate on a single ground, namely the significance of the Bill, and this was the sole ground on which the order was made.

Outcome

The Court granted the injunction sought by D, taking into account the intended policy behind the Bill. It also observed that even if presented, the petition was highly unlikely to be heard before the Bill is enacted. Accordingly, at any future hearing of the petition, the Court would have to apply the tests set out above.

The Court was provided with evidence as to the effects the coronavirus had had on the finances of D and concluded that there was a strong case that coronavirus had had a financial effect on the company and that the facts on which the petition was based would not have arisen if coronavirus had not had such an effect.

Comment

Although the Bill has not yet formally become law, the above case illustrates that the Courts will likely still apply its provisions when faced with a petition presented on or after 27^th April 2020 or an application to restrain the presentation of such a petition. This will therefore be a strong disincentive for creditors to present winding-up petitions before the restrictions contained in the Bill are lifted. The voiding of any winding-up order made between 27^th April 2020 and the coming into force of the Bill further strengthens this disincentive.

The wording of the Bill suggests that the onus will be on a creditor to show that coronavirus has not had a financial effect on a company or that the facts giving rise to the petition would have arisen in any event. However, should you find yourself in the position of having to seek an injunction to restrain the presentation of a winding-up petition or to oppose a petition that has been presented, it is important that you obtain as much evidence as possible to demonstrate the effect that coronavirus has had on your company and that the circumstances resulting in the presentation or threatened presentation of the petition would not have arisen if coronavirus had not had a financial effect on the company.

It is also notable that the Court must be satisfied that “coronavirus” did not have a financial effect on the company. This term is potentially very broad; it does not appear to be limited to the national lockdown and could therefore include more far-reaching effects of the virus, such as global supply issues.

At Rogers & Norton we have wide experience of representing both creditors and debtors in insolvency proceedings. If you are being pursued for a debt or are a creditor looking to recover money owing to you please contact the Dispute Resolution department to discuss your options further.