Kerry Underwood

INSOLVENCY: INJUNCTION RESTRAINING ADVERTISEMENT OF WINDING-UP PETITION GRANTED UNDER CORPORATE INSOLVENCY AND GOVERNANCE BILL, NOT YET LAW

with 2 comments


Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Re A Company [2020] EWHC 1551 (Ch) (16 June 2020)

the Chancery Division of the High Court granted an injunction restraining advertisement of a winding-up petition based on paragraph 5 of Schedule 10 to the Corporate Insolvency and Governance Bill 2019-21 (Schedule 10), which as the name suggests, is not yet law but which will have retrospective effect.

The court found that on the facts paragraph 5(1)(a) and (b) of Schedule 10 were satisfied, that is the petition was presented in the relevant period and the company was deemed unable to pay its debts on a ground specified in section 123(1) of the Insolvency Act 1986.

The court held that the evidential burden of showing that COVID-19 had a financial effect on the company before the presentation of the petition,so as to satisfy paragraph 5(1)(c) of Schedule 10 was on the company, not the petitioner.

This was a low threshold; the requirement was simply that a financial effect must be shown, not that COVID-19 was a cause of the company’s insolvency.

The evidential burden was to establish a prima facie case, rather than to prove the financial effect on a balance of probabilities.

The court held that the fact that the company’s funding drive was stopped by the onset of COVID-19 satisfied the requirement.

As paragraph 5(1) of Schedule 10 was satisfied, the court noted that, at the hearing of the petition, it would only be able to wind-up the company if paragraph 5(3) of Schedule 10 was satisfied.

Thus, the ground on which the petition was based  – section 123(1) of the Insolvency Act 1986 –  would apply even if COVID-19 had not had a financial effect on the company.

The burden of showing this was on the petitioner.

The court was not satisfied with this and found that there was no real chance of a winding-up order being made on the petition.

Allowing the advertisement would also be oppressive and unfair to the company, which was in the process of implementing a scheme of arrangement.

The High Court had previously restrained the presentation of a winding-up petition based on Schedule 10: – see

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

The purpose of the legislation was set out in a government press release on 23 April 2020:

“…the government will temporarily ban the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27th April, through to 30th June, where a company cannot pay its bills due to coronavirus.”

 

Comment

Without going into the facts of this case in detail, it was clear that at the beginning of 2019 the company was unable to pay its debts.

There is much comment on the expected massive rise in unemployment once furloughing ends, and also on the fact that many companies may be unable to continue trading, genuinely due to coronavirus.

What is less commented on the fact that many companies which were about to go into administration or liquidation, irrespective of coronavirus, have had a stay of execution.

Coronavirus has not caused these companies to get into financial difficulties; that is the point that I am making.

However, it will mean that in addition to companies which have genuinely suffered due to coronavirus, a dam will break in relation to companies which were going under anyway but, as stated above, have had a stay of execution.

 

Underwoods Solicitors are the solicitors for Crowe UK LLP, the Joint Liquidators of the Cambridge Analytica Group of Companies

Written by kerryunderwood

June 30, 2020 at 8:07 am

Posted in Uncategorized

2 Responses

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  1. Do we know what costs order was made here? Even though the company succeeded it only did so because of this hastily cobbled together legislation, and It would be very unfair to award costs against the Petitioner when they clearly had every justification for issuing the Petition.

    Michael Loveridge

    June 30, 2020 at 11:34 am

    • No, in a word. If you look at paragraph 51 of the judgment it states:

      ‘’I shall hear from counsel on the wording of the order and costs on the handing down of this judgement.’’

      Kerry

      kerryunderwood

      July 23, 2020 at 12:00 pm


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