COVID-19: Injunction restrains winding up petition for company

The Corporate Insolvency and Governance Bill 2020 (CIGB), which is expected to become law in late June/early July, contains a number of temporary measures intended to deal with insolvency-related issues arising from the COVID-19 pandemic (see our summary here). Despite the fact that the CIGB is not yet law, the English courts have signalled a willingness to consider certain of its provisions in relation to winding up petitions in anticipation of its passage into law.

Re A Company (Injunction to Restrain Presentation of a Petition) [2020] EWHC 1406 (Ch) concerned an unidentified High Street retailer, in respect of which a landlord had taken preliminary steps to present a winding up petition following the non-payment of rent on a retail unit. The High Street retailer applied for an injunction to restrain the creditor from presenting the winding-up petition on the basis of provisions of the CIGB.

In its current form, the CIGB provides that winding up orders made between 27 April and 30 June 2020 will be void unless a petitioner can show that the COVID-19 pandemic has not had a “financial effect” on the company, or that the relevant ground for winding up would have been satisfied even in the absence of COVID-19.

Noting that there was a “high degree of confidence” that these provisions of the CIGB will be enacted in more or less their current form by the end of June 2020, Mr Justice Morgan found that the court could consider such likely changes to the law when determining whether to grant relief.

Mr Justice Morgan concluded that, if presented, the winding up petition would ultimately fail, while nevertheless having a serious damaging effect on the High Street retailer. He therefore decided to issue an injunction to restrain the creditor from presenting the winding up petition. The grant of such an injunction was, he noted, powerfully supported by the clear policy objectives of the CIGB.

This case provides a striking insight into the Courts’ approach to winding up petitions presented at the height of the COVID-19 pandemic but prior to the CIGB’s passage into law. It makes it clear that there is little to be achieved by seeking to present COVID-19-related winding up petitions even before the CIGB comes into force.

Any creditor seeking to present a winding up petition will be expected to present compelling evidence to show that the grounds for the petition would have arisen even in the absence of any financial effect from COVID-19. In practice it is likely going to be easier for the company subject to any petition to say that COVID-19 is the cause of its financial woes than it is for the petitioner, often a stranger to the company, to say that it is not.

Even if a winding up order were to be granted before the CIGB comes into force, the CIBG includes a provision which would entitle any such winding up orders to be revisited if the effects of COVID-19 were not properly taken into account and any winding up could be unwound (which could be a relatively messy process if steps have already been taken).