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3-06-2020

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On 2 June Morgan J gave reasons for granting an injunction restraining a creditor from presenting a winding up petition in what must be one of the first applications, and possibly the first application, made for Covid-19 reasons (Re a Company (Injunction To Restrain Presentation of Petition) [2020] EWHC 1406 (Ch)).  

 

The applicant company was a High Street retailer. The creditor was the lessor of retail premises from which the company traded until it was required to close in accordance with government instructions. The judge proceeded on the basis that the company had failed to pay rent and service charges, and the creditor was unable to seek forfeiture of the lease (section 82 Coronavirus Act 2020). It had served a statutory demand in April.  

 

The company advanced a number of grounds in support of its application. There were issues as to service of the statutory demand and its validity. The company relied on submissions about the class nature of winding up, contending that a winding up order in this case would be harmful to the interests of the creditors generally and would confer no benefit on the creditor; indeed it was said that the petition was bound to fail because it had been brought for a collateral purpose and was thus an abuse of process. But the judge did not hear full submissions on those matters. He was more interested in “the significance of the provisions as to winding up contained in the Corporate Insolvency and Governance Bill 2020 (‘the CIG Bill’)”. 

 

Morgan J analysed in detail the provisions of the Bill contained in schedule 10. “When I refer to what schedule 10 ‘provides’, I am referring to the terms of the Bill in its current form, even before it has been enacted” [sic]. He went on to summarise the prospective legislation as follows:

 

“10. Paragraph 1 of schedule 10 provides that no petition for the winding up of a registered company may be presented under section 124 of the 1986 Act on or after 27 April 2020 on the ground specified in section 123(1)(a) (i.e. non-compliance with a statutory demand) where the demand is served during the relevant period which begins on 1 March 2020 and ends on 30 June 2020 (or one month after the coming into force of schedule 10, whichever is later). Paragraph 1 of schedule 10 states that it is to be regarded as having come into force on 27 April 2020.

11. Paragraph 2 provides for there to be restrictions on the presentation of winding up petitions. Paragraph 2(1) refers to petitions based on various grounds including the ground in section 123(1)(a) (non-compliance with a statutory demand) and paragraph 2(3) refers to a petition based on the ground in section 123(1)(e) (where it is proved that the company is cash flow insolvent) or section 123(2) (where it is provided that the company is balance sheet insolvent). Paragraph 2 is to be regarded as having come into force on 27 April 2020.

12. Both paragraph 2(1) and paragraph 2(3) require a creditor who seeks to present a petition pursuant to those provisions to satisfy a condition expressed in paragraph 2(2) or paragraph 2(4), as the case may be. The condition in paragraph 2(2) is expressed as follows:

‘(2) The condition referred to in sub-paragraph (1) is that the creditor has reasonable grounds for believing that— (a) coronavirus has not had a financial effect on the company, or (b) the facts by reference to which the relevant ground applies would have arisen even if coronavirus had not had a financial effect on the company.’

13. The condition in paragraph 2(4) is in slightly different terms but appears to have a similar effect to the condition in paragraph 2(2).

14. Paragraph 4 of schedule 10 deals with winding up petitions presented on or after 27 April 2020 but before the day on which schedule 10 comes into force. If the court to which the petition is presented without the condition in paragraph 2(2) or 2(4) being met, the court may make such order as it thinks appropriate to restore the position to what it would have been if the petition had not been presented.

15. Paragraph 5 of schedule 10 provides:

‘5 (1) This paragraph applies where—

(a) a creditor presents a petition for the winding up of a registered company under section 124 of the 1986 Act in the relevant period,

(b) the company is deemed unable to pay its debts on a ground specified in section 123(1) or (2) of that Act, and

(c) it appears to the court that coronavirus had a financial effect on the company before the presentation of the petition.

(2) The court may wind the company up under section 122(1)(f) of the 1986 Act on a ground specified in section 123(1)(a) to (d) of that Act only if the court is satisfied that the facts by reference to which that ground applies would have arisen even if coronavirus had not had a financial effect on the company.

(3) The court may wind the company up under section 122(1)(f) of the 1986 Act on the ground specified in section 123(1)(e) or (2) of that Act only if the court is satisfied that the ground would apply even if coronavirus had not had a financial effect on the company.

(4) This paragraph is to be regarded as having come into force on 27 April 2020’.”

 

He concluded, “If these provisions of the CIG Bill are enacted in their present form, then their effect will be clear. The policy of these provisions in the CIG Bill is self-evident.” A petition, if presented, would not result in a winding up order. Accordingly he granted an injunction but on terms that the company provide a cross-undertaking in damages.

The case of interest because it is probably the first of its kind, but also because the order made was made in contemplation of legislation not yet enacted. The creditor did not, however, appear, so it was not fully argued and must be treated with a measure of caution.

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