Corporate Insolvency and Governance Bill – Injunction granted to company to restrain the presentation of a winding-up petition
In the recent case of Re A Company (injunction to restrain presentation of petition)  EWHC 1406 (Ch), an unnamed company, who is a high street retailer, applied for an interim injunction to restrain the presentation of a petition to wind it up. The Petitioner was the Company’s landlord. The landlord, who was the landlord of one retail unit of which the Company was a tenant, had filed a winding-up petition because of unpaid rent and service charges. The landlord had been prevented by section 82 of the Coronavirus Act 2020 from being able to seek forfeiture of the lease on the grounds of unpaid rent and service charges. As an alternative, it had, around 15 April 2020, served a statutory demand in relation to the arrears and rent charges on the Company. It had then sought to issue a winding-up petition online, but had not, at the time the application for the injunction came before the Court, paid the issue fee.
The Company sought an interim injunction to restrain the presentation of a winding-up petition on various grounds. However, the Court invited the Company’s Counsel to concentrate on a single ground, being the significance of the proposed Corporate Insolvency and Governance Bill 2020, and this was the sole ground upon which the injunction was made.
The contents of the Corporate Insolvency and Governance Bill 2020 looks to protect companies affected by the Coronavirus from being wound up because they cannot pay their debts and seeks to allow them a breathing space. It was published by the Government on 20 May and is now at the amendment stage of the parliamentary process. It is likely to become law very soon indeed. For a more detailed overview of the Bill’s proposals, please see our article here.
The Court granted the interim injunction using reasoning which can be summarised as follows:
1. Proposals in the Corporate Insolvency and Governance Bill 2020 make it clear what the Government’s intended policy will be. Namely to protect the Government’s investment in the UK economy by sheltering companies affected by Coronavirus from insolvency
2. It was unlikely that the winding-up petition, if it was presented, would be heard before the Bill became law. Therefore, subject to the Bill’s current terms, the Court would, at the future winding-up hearing, have to decide whether the Coronavirus had had a financial effect on the Company before the presentation of the petition. If it had, the Court would only be able to wind up the Company if it was satisfied that the facts upon which the petition was based would have arisen, even if the Coronavirus had not had a financial effect on the Company.
3. The Court had been provided with a substantial body of evidence to the effect that the Coronavirus had had a significant impact on the Company’s finances and that the petition would not have arisen had it not been for the Coronavirus.
The Court noted that the Creditor wished to invoke the procedure of the Court in circumstances where:
i) it was improbable that the Court would make a winding-up order because of the forthcoming Bill;
ii) the existence of a presented petition would cause serious damage to the Company, even if no winding-up order was eventually made; and
iii) in the circumstances, the Court was entitled to take into account its own assessment of the likelihood of a change to the law which would be relevant to any future decision.
Reference was made to the earlier case of Travelodge Ltd v Prime Aesthetics Ltd  EWHC 1217 (Ch), in which an injunction was granted to restrain the presentation of a winding-up petition on the basis of what had been said in ministerial statements about the forthcoming statements to the law. These statements were made before the actual Bill was published.
Based on the above, it is clear that the courts are sensitive to the current Coronavirus situation and the Government’s policy to safeguard its investment in the UK economy. The impact of the forthcoming Corporate Insolvency and Governance Bill 2020 seeks to give companies affected by the Coronavirus a breathing space and encourage parties to act reasonably in relation to the aftermath of the Coronavirus.
Based on this case, it would appear that:
- applications by insolvent companies to restrain winding-up petitions pending the passing of the Bill are likely to succeed, unless there is very strong evidence that they have not been impacted by the Coronavirus;
- the onus will be on the creditor to demonstrate that the Coronavirus has not had a financial effect on the company or that the facts giving rise to a winding-up petition would have arisen in any event;
- the courts have an eye to Government policy relating to the protection of the UK economy.
It is worth mention, that the Court did order that the Company must give a cross-undertaking for costs. In interim injunction cases, where an interim injunction is made, the party that is granted the injunction must usually undertake to the court that if the interim injunction is not upheld at the final hearing, then they will meet the other party’s losses incurred as a result of the interim injunction. No exception was made here because of the Bill or the Coronavirus.
The Bill is likely to become law very quickly. As such, the need for restraining injunctions may be short lived. However, for those companies currently in the emergency scenario of facing a winding-up petition, this case should give them enough certainty to consider an application for an interim injunction and/or persuade their creditor that proceeding is a bad idea.
For more information on the case or insolvency in general, please do not hesitate to contact Graham Mead, a partner, in our commercial litigation team on 01473 298234.