ICC Judge Barber, sitting as a Judge in the High Court, granted an injunction to restrain the Respondent from presenting a winding-up petition against the Company in the matter of Re a Company (Application to Restrain Advertisement) [2020] EWHC 1551 (Ch).
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Background
In this case, a winding-up petition was presented on 1 May 2020 following service of a statutory demand on 27 March 2020. The First Respondent claimed a sum of £160,697 in respect of debts and interest in respect of a loan agreement entered into in 2018. The petition was listed to be heard on 17 June 2020. The company applied for an injunction to restrain advertisement and continued prosecution of the petition initially on four main grounds as detailed below. The Judge considered the Corporate and Insolvency Governance Bill (“the Bill”).
What were the four main grounds?
In paragraph 8 of the judgment, the Judge considered the following grounds:
1. Whether the provisions of Part One (paragraph 1) of Schedule 10 to the Corporate Insolvency and Governance Bill (‘the CIG Bill’) would, if enacted, permit the petition to proceed;
2. Whether the provisions of Part Two (paragraphs 2 to 21) of Schedule 10 to the CIG Bill would, if enacted, permit the petition to proceed;
3. Whether the court should factor the provisions of the CIG Bill into the exercise of its discretion in relation to the Company’s application, in circumstances where the CIG bill has not yet been enacted; and
4. Whether, in light of the foregoing, in the exercise of the court’s discretion to order an injunction, it would be oppressive and unfair to wind up the Company given the potential changes to the law and the retrospective nature of those changes.
Paragraph 8 of the Judgment
In relation to the first issue, the Judge noted that in this case, the creditor was able to rely on a statutory demand as well as a letter of demand made in January 2020, and as such, there was no basis for granting the company relief.
When was the repayment due?
Likewise, the Company was not successful in relation to the second issue either; the Judge noted that the repayment date provided under the terms of the agreement was 120 days from the date of the loan agreement. The loan was therefore due for repayment on 22 January 2019; long before the start of the COVID-19 pandemic.
Did it appear to the Court that COVID-19 had a financial effect on the Company?
The third issue is an interesting one, in that the court would now have to ask itself whether “it appeared to the court” that COVID-19 had had a financial effect on the company before the presentation of the petition. The Judge dealt with this in paragraph 44 of her Judgment and stated that:
This is clearly intended to be a low threshold; the requirement is simply that ‘a’ financial effect must be shown: it is not a requirement that the pandemic be shown to be the (or even a) cause of the company’s insolvency. Moreover the language of this provision, which requires only that it should ‘appear’ to the court that coronavirus had ‘a’ financial effect on the company before presentation of the petition, is in marked contrast to that employed in paragraph 5(3), where the court is required to be ‘satisfied’ of given matters. The term ‘appears’ must be intended to denote a lower threshold than ‘satisfied’. The evidential burden on the Company for these purposes must be to establish a prima facie case, rather than to prove the ‘financial effect’ relied upon on a balance of probabilities. Applying these principles, there is in my judgment adequate evidence before me that a funding drive was underway by late December 2019/early January 2020 which was stopped in its tracks by the onset of the pandemic. The sudden halting of the funding drive is in my judgment a ‘financial effect’ of the pandemic for the purposes of paragraph 5(1)(c).
Paragraph 44 of the Judgment
The judge, therefore, concluded there was no real likelihood of a winding-up order being made on the petition (assuming that paragraph 5(3) actually came into force). She also noted that even if a winding-up order were made on the evidence as it stood, paragraph 7 of the Bill (if brought into force) would render the winding-up order void, lead to the company succeeding on the third issue.
What was the judgment in this case?
The judge accordingly granted an injunction restraining advertisement on terms that the company provided a cross-undertaking in damages. However, in the light of the fact that the Bill had not yet been passed and indications that there may well be further material available which has not yet been adduced in evidence on the issue of whether section 123(1)(e) would apply even if coronavirus had not had a financial effect on the Company, she made the injunction until further order with liberty to the petitioner to apply to lift it on the production of further evidence.
Read the full judgment here:
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