A recent judgment in the High Court of Justice has provided an insight into how the courts are dealing with winding up petitions in light of the issues presented by the Coronavirus (COVID-19).
The case discussed in this article, Re A Company  EWHC 1551 (the “Case”), was handed down after the Corporate Insolvency and Government Bill (the “Bill”) was made available but prior to it receiving Royal Assent to become an act. Please see our previous articles on the Corporate Insolvency & Governance Act 2020 (the “Act”) and Winding Up Petitions and Coronavirus (COVID-19) accordingly.
As stated above, the Case was heard before the Act came into force but the provisions contained in the Bill were known and such provisions are fundamentally similar to the provisions of the Act.
The Company issued an application to restrain the advertisement of a winding up petition and proceeding with it generally by the First Respondent and to restrain the presentation of winding up petitions by the Second and Third Respondents. Each of the respondents had served statutory demands on the 27 March 2020 and the First Respondent had presented a winding up petition against the Company on 1 May 2020.
In relation to the petition presented by the First Respondent, the debt related to a loan agreement dated 24 September 2018, of which the loan amount and interest was due and pursued by the First Respondent from December 2019 to January 2020 and of which formal demand was made on 24 January 2020. Such correspondence and formal demand from the First Respondent was met with either silence or holding responses.
In April 2020, the Company circulated a letter to all loan note holders, including each of the respondents effectively blaming COVID-19 for the delay in repayment and asking for patience in regards to repayment.
The court ultimately decided that the advertisement of the petition presented by the First Respondent should be restrained and injunctions in relation to the presentation of petitions by the Second Respondent and Third Respondent be granted. It was decided that the Company had not provided sufficient evidence to satisfy the court that the Company would have been unable to pay its debts irrespective of the impact of COVID-19, despite the respondents having reasonable grounds to believe that the Company would be insolvent irrespective of the impact of COVID-19.
The Company successfully argued that although it was insolvent, it had been prevented from obtaining funding, to enable it to propose a scheme of arrangement to the Company’s unsecured creditors, as a result of COVID-19. It was held that the threshold for establishing that COVID-19 had a financial effect on a company before the presentation of the petition was a low one and one which was established in the present Case.
It is clear from the Case that the government’s intention in relation to the COVID-19 provisions of the Bill and the Act, will be carefully implemented by the courts in order to protect entities struggling financially.
Posted on August 3, 2020