Case Note: High Court applies Corporate Insolvency and Governance Bill

Mr Justice Morgan made an order to restrain the presentation of a winding-up petition in the matter of A Company (Injunction To Restrain Presentation of Petition) [2020] EWHC 1406 (Ch) on 2 June 2020.

The interesting point to note is that the Judge took into consideration the significance of the provisions as to winding up of a company contained in the Corporate Insolvency and Governance Bill 2020 (which is yet to receive the Royal Assent) in coming to the conclusion that the the Company was entitled to an order restraining the presentation of a winding-up petition. This judgment is likely to be of interest to practitioners and the potential application of the Bill once it receives Parliamentary assent.

We are leading experts specialising in insolvency proceedings. Our experienced City of London solicitors and barristers regularly assist companies facing a winding up petition; individuals served a statutory demand; or creditors owed money and considering issuing a winding up petition

When will the Bill apply?

The Corporate Insolvency and Governance Bill had its first reading in the House of Commons on 20 May 2020 and second reading on 3 June 2020. The current expectation is that the Bill will receive the Royal Assent by the end of June 2020, however, as it can be seen from this instant case, Judges have already started applying the relevant provisions of the Bill in their Judgements.

The new provisions will apply until 30 June 2020 or later to the date one month after the Bill becomes law as currently the second reading of the bill is timetabled for June 2020, however, the provisions are likely to be extended.

Background

The company is a high street retailer and the creditor is the lessor of one retail unit of which the company is the lessee. The company traded from those premises until it was required to close down in accordance with the instructions from the Government in response to the Covid-19 pandemic.

The company failed to pay its rent and service charge which recently fell due under the lease. The creditor was unable to seek forfeiture of the lease on those grounds by reason of section 82 of the Coronavirus Act 2020.

A petitioning creditor filed a winding-up petition electronically via the Court’s e-filing system, however, the petitioning creditor had not paid the court fee and as such, the petition had not been presented. In any event, the creditor could present the petition at any time in the absence of an injunction to restrain the petition.

What was the judgment in this case?

The Judge considered schedule 10 of the Bill in its current form and before it has been enacted. The Judge noted that the following provisions of schedule 10 were relevant:

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.

Paragraph 10 of the Judgment

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.”

Paragraph 12 of the Judgment

The Judge made an order to restrain the presentation of the winding-up petition (until the final hearing) on the ground that he was satisfied that that was the appropriate order to make in the light of the submissions based on the Bill.

Why did the Judge grant an interim injunction before the enactment of the Bill?

The Judge gave his reasoning in paragraphs 18 of his Judgment and stated that:

It the petition were presented today or in the near future, it is most unlikely that it would be heard before the CIG Bill is enacted. As indicated earlier, once enacted, the relevant provisions are to be regarded as having come into force on 27 April 2020. This means that, on the hearing of the petition, a court must ask itself whether coronavirus has had a financial effect on the company before the presentation of the petition. If that is held to be the case, then the court can only wind up the company if it is satisfied that the facts on which the petition is based (under section 123(1) or (2)) would have arisen even if coronavirus had not had a financial effect on the company.

Paragraph 18 of the Judgment

The Court was provided with a substantial body of evidence as to the effect of coronavirus on the finances of the company before the presentation of the petition. The Court noted that the facts on which the petition would be based would not have arisen if coronavirus had not had a financial effect on the company. This means that it appeared to the Court that a petition to wind up the company would not result in the court making a winding up order.

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