First Covid-19 injunction?

On 2 June Morgan J gave reasons for granting an injunction restraining a creditor from presenting a winding up petition in what must be one of the first applications, and possibly the first application, made for Covid-19 reasons (Re a Company (Injunction To Restrain Presentation of Petition) [2020] EWHC 1406 (Ch)).

The applicant company was a High Street retailer. The creditor was the lessor of retail premises from which the company traded until it was required to close in accordance with government instructions. The judge proceeded on the basis that the company had failed to pay rent and service charges, and the creditor was unable to seek forfeiture of the lease (section 82 Coronavirus Act 2020). It had served a statutory demand in April.

The company advanced a number of grounds in support of its application. There were issues as to service of the statutory demand and its validity. The company relied on submissions about the class nature of winding up, contending that a winding up order in this case would be harmful to the interests of the creditors generally and would confer no benefit on the creditor; indeed it was said that the petition was bound to fail because it had been brought for a collateral purpose and was thus an abuse of process. But the judge did not hear full submissions on those matters. He was more interested in “the significance of the provisions as to winding up contained in the Corporate Insolvency and Governance Bill 2020 (‘the CIG Bill’)”.

Morgan J analysed the provisions of the Bill contained in schedule 10. “When I refer to what schedule 10 ‘provides’, I am referring to the terms of the Bill in its current form, even before it has been enacted” [sic].

He went on to summarise the prospective legislation in paragraphs 10-15 of his judgment, noting that paragraph 1 Sch 10 provided that no winding up petition could be presented under section 124  Insolvency Act on or after 27 April 2020 on the ground of non-compliance with a statutory demand where the demand was served during the period beginning on 1 March 2020 and ending on 30 June 2020 (or one month after the coming into force of Sch 10, whichever was later); and that paragraph 1 Sch 10 stated that it was to be regarded as having come into force on 27 April 2020. Paragraph 2 provided for restrictions on the presentation of winding up petitions, paragraph 2(1) referring to petitions based on various grounds including non-compliance with a statutory demand, and paragraph 2(3) referring to petitions based on  cash flow insolvency or balance sheet insolvency. Paragraph 2, he noted, was to be regarded as having come into force on 27 April 2020.

Both paragraphs 2(1) and 2(3) required a creditor wishing to present a petition to satisfy the conditions set in paragraph 2(2) or 2(4), namely in paragraph 2(2) that the creditor had reasonable grounds for believing that  (a) coronavirus had not had a financial effect on the company, or (b) the facts by reference to which the relevant ground applied would have arisen even if coronavirus had not had a financial effect on the company. (The condition in paragraph 2(4) was in slightly different terms but appeared to have a similar effect to the condition in paragraph 2(2)).

He pointed out that paragraph 4 Sch 10 dealt with winding up petitions presented on or after 27 April 2020 but before the day on which Sch 10 was to come into force. “If the court to which the petition is presented without the condition in paragraph 2(2) or 2(4) being met, the court may make such order as it thinks appropriate to restore the position to what it would have been if the petition had not been presented”.

Finally, he noted paragraph 5 Sch 10: where a creditor presented a winding up petition under section 124 Insolvency Act in the relevant period and it appeared to the court that coronavirus had had a financial effect on the company before the presentation of the petition, the court could wind the company up only if  satisfied that the facts by reference to which that ground applied would have arisen even if coronavirus had not had a financial effect on the company. (Again, the provision was to be regarded as having come into force on 27 April 2020.)

He concluded, “If these provisions of the CIG Bill are enacted in their present form, then their effect will be clear. The policy of these provisions in the CIG Bill is self-evident.” A petition, if presented, would not result in a winding up order. Accordingly he granted an injunction but on terms that the company provide a cross-undertaking in damages.

The case is of interest because it is probably the first of its kind, but also because the order  was made in contemplation of legislation not yet enacted. The creditor did not, however, appear, so it was not fully argued and must therefore be treated with a measure of caution.