Company – Winding-up petition – Injunction – Claimant unable to pay rent on commercial premises due to lockdown caused by coronavirus – Defendant landlords giving notice of intention to present winding-up petition – Claimant applying for injunction to restrain presentation of petition – Whether court entitled to take account of likelihood of change in law relevant to its decision – Application granted
The claimant company was a high street retailer which leased a retail unit from the defendant landlord. The claimant traded from those premises until it was required to close them in response to the Covid-19 pandemic. Thereafter, it was unable to pay its rent and service charges. The defendant was unable to seek forfeiture of the lease on those grounds by reason of section 82 of the Coronavirus Act 2020.
On or about 15 April 2020, the defendant served, or purported to serve, a statutory demand relating to the arrears of rent and service charge. It then e-filed a petition seeking the winding up of the company based on the ground, within section 122(1)(f) of the Insolvency Act 1986, that the company was unable to pay its debts. It seemed likely that the defendant relied on section 123(1)(a) but it might be that it also relied on section 123(1)(e) or (2) of the 1986 Act.
The claimant applied for an injunction to restrain the presentation of the petition. It argued that, in certain circumstances and for certain purposes, the court could take into account, when reaching its decision, the possibility of a change in the law. In support of its application, the claimant relied, amongst other things, on paragraph 1 of schedule 10 to the Corporate Insolvency and Governance Bill 2020, which provided that no petition for the winding up of a registered company could be presented under section 124 of the 1986 Act, on or after 27 April 2020, on the ground of non-compliance with a statutory demand, where the demand was served during the relevant period which began on 1 March 2020 and ended on 30 June 2020.
Under paragraph 2, any creditor who sought to present a petition had to have reasonable grounds for believing that coronavirus had not had a financial effect on the company; or show that the relevant facts would have arisen even if coronavirus had not had a financial effect on the company. The 2020 Bill was expected to receive Royal Assent by the end of June 2020. There were also ministerial statements as to the government’s commitment to enact that legislation in more or less its current form and on the timetable referred to.
Held: The application was granted.
(1) If the petition were presented in the near future, it was unlikely that it would be heard before the 2020 Bill was enacted. Once enacted, the relevant provisions were to be regarded as having come into force on 27 April 2020. Therefore, on the hearing of the petition, a court had to ask itself whether coronavirus had had a financial effect on the company before the presentation of the petition. If that was held to be the case, the court could only wind up the company if it was satisfied that the facts on which the petition was based (under section 123(1) or (2) of the 1986 Act) would have arisen even if coronavirus had not had a financial effect on the company.
On the evidence, there was a strong case (at the lowest) that coronavirus had had a financial effect on the company before the presentation of the petition and that the facts on which the petition would be based would not have arisen if coronavirus had not had a financial effect on the company. Thus, it appeared that a petition to wind up the claimant would not result in the court making a winding-up order. The evidence showed that the presentation of such a petition which would ultimately fail would nonetheless have a seriously damaging effect on the claimant. In those circumstances the company had asked the court to restrain the presentation of a winding-up petition.
(2) When the court was deciding whether to grant relief and, in particular, relief which involved the court controlling or managing its own processes, it could take into account its assessment of the likelihood of a change in the law which would be relevant to its decision. In the present case, the defendant wished to invoke the procedures of the court to present a winding-up petition.
On the court’s assessment of the relevant circumstances, the defendant wished to do so where it was improbable that the court would make a winding-up order but where the existence of a presented petition would cause serious damage to the company. In those circumstances, as a matter of law, the court was able to take into account its assessment of the likelihood of the change in the law represented by schedule 10 to the 2020 Bill. Having taken that assessment into account, the court should control its own processes by restraining the presentation of the petition in the present circumstances.
The court was not powerless to act to prevent its procedures being used otherwise than for the purpose of obtaining a winding-up order (because it was improbable that such an order would be made) but for the purpose of, or at any rate with the effect of, causing serious damage to the company. The grant of an injunction to restrain the presentation of the petition was powerfully supported by the clear policy objectives of the 2020 Bill: Hill v CA Parsons & Co Ltd [1972] Ch 305 applied; Sparks v Harland [1997] 1 WLR 143 and Travelodge Ltd v Prime Aesthetics Ltd [2020] EWHC 1217 (Ch) followed.
(3) The court rejected the claimant’s argument that it should not be required to give a cross-undertaking in damages in relation to the injunction which the court would grant. The claimant was wrong to submit that the defendant had to show that the injunction was likely to cause it a loss before a cross-undertaking was required. Accordingly, the injunction would be on terms that the claimant should provide the usual cross-undertaking in damages: JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 39 applied.
Felicity Toube QC and Adam Al-Attar (instructed by Latham & Wilkins LLP) appeared for the claimant. The defendant did not appear and was not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Re a Company (injunction to restrain presentation of petition)
