Certainty at Last

Injunction restraining presentation of winding-up petition granted on the basis of the pending Corporate Insolvency and Governance Bill

19 June 2020

Banking_(643199935)

In Re A Company (Injunction to Restrain Presentation of Petition) [2020] EWHC 1406 (Ch).

We have all anticipated such a ruling but it is finally here. We were clear where we would stand once the legislation was enacted but for present there appeared to be a lacuna or loophole allowing landlords to take action. The loophole is firmly shut.

Morgan J in the High Court in England has ruled on the relevance of The Corporate Insolvency and Governance Bill when looking at Injunction applications seeking relief from Winding Up Proceedings for tenants during the current COVID-19 pandemic.

Background

The Corporate Insolvency and Governance Bill 2019-2021

The Corporate Insolvency and Governance Bill 2019-2021 (the Bill) was published on 20 May 2020. It includes restrictions that seek to completely prevent winding-up petitions from being presented to court on or after 27 April 2020 where they rely on a preceding statutory demand served during the relevant period (1 March 2020 to 30 June 2020 or one month after the Bill comes into force, if later) (paragraph 1, Schedule 10, the Bill).

The Bill also provides that a creditor cannot present a winding-up petition on the grounds of a company's inability to pay its debts unless they have reasonable grounds for believing that the coronavirus has not had a financial effect on the company or that the debt issues would have arisen anyway (paragraphs 2 and 3, Schedule 10, the Bill).

Where the court disagrees with a petitioning creditor's assessment that coronavirus has not had a financial effect on the company, the court still has discretion to make a winding-up order if it is satisfied that the company's inability to pay its debts would have arisen anyway.

Once the Bill is passed, the above provisions are to be regarded as having come into force on 27 April 2020.

Facts

A retail company, which closed its premises in line with government instructions on COVID-19, failed to pay the rent and service charge due under the lease for the premises. The landlord was unable to forfeit the lease due to section 82 of the Coronavirus Act 2020. The landlord therefore served, or purported to serve, a statutory demand relating to the arrears of rent and service charge. The tenant company did not pay the demanded arrears.

On that basis, the creditor then e-filed, (as can be done in England but not presently in Northern Ireland) a winding-up petition in respect of the company. The company applied for an injunction to restrain the presentation of the petition. In particular it cited legislation that was not presently enacted but was still on its way through Parliament.

Decision

The High Court (Morgan J) granted an injunction restraining the presentation of the winding-up petition on the following bases:

  • Morgan J stated that, having been referred to a number of ministerial statements, he felt a "high degree of confidence" that schedule 10 to the Bill would be enacted in more or less its current form, and that the Bill will receive Royal Assent by the end of June 2020.
  • On the evidence, there was a strong case (at the lowest) that COVID-19 had a financial effect on the company before the presentation of the winding-up petition, and that the facts on which the petition would be based would not have arisen if COVID-19 had not had a financial effect on the company. Therefore, a winding-up petition would not result in the court making a winding-up order.
  • Hills and Sparks, supported by Travelodge, were authority for the proposition that when the court is deciding whether to grant relief and, in particular, relief that involves the court controlling or managing its own processes, it can take into account its assessment of the likelihood of a change in the law which would be relevant to its decision.
  • On the evidence, the presentation of the winding-up petition, even though it would ultimately fail, would nonetheless have a seriously damaging effect on the company. In such circumstances, the court held that it was able to take into account the likelihood of the change in the law represented by Schedule 10 to the Bill, and grant the injunction.
  • The grant of the injunction was also powerfully supported by the clear policy objectives of the Bill.

Significance of the Decision

Whilst there is interest in the decision in the present COVID-19 crisis in the ability of a landlord to pursue a debtor through insolvency action, the more lasting significance appears to be a reiteration of the court’s power to grant an injunction, or indeed any relief, based on legislation that hasn't been enacted but is imminent.

Morgan J indicated the importance of the decision in this case - even though the hearing was ex parte, he took the view that the judgment should be given in open court as the points that were argued might arise in other cases in the near future. He was obviously clear that this has been a hot topic for tenants and landlords.

If you would like to discuss how this decision may affect your business or have any insolvency or debt recovery queries please contact Darren Toombs from our Insolvency and Restructuring team.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.

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