The Court of Appeal has considered the enquiry which the court is required to undertake at a preliminary hearing of a winding up petition to ascertain whether the coronavirus test under Schedule 10, Part 2 of the Corporate Insolvency and Governance Act 2020 and its Practice Direction (CIGA) is satisfied. The decision in Doran and Doran v County Rentals Limited T/A Hunters [2022] EWCA Civ 1376 will be relevant to other legacy cases.
Under section 122 of the Insolvency Act 1986, a company may be wound up by the court if it is unable to pay its debts and is deemed to be unable to do so, under section 123, if the court is satisfied that it cannot pay its debts when they fall due. CIGA was enacted to protect companies from winding up under section 123 where they were adversely affected by the coronavirus pandemic, with the aim of ensuring businesses could maximise their chances of survival.
During the period 27 April 2020 to 30 September 2021, a creditor could only present a petition based on the ground in section 123 where it had reasonable grounds for believing that coronavirus had not had a financial effect on the company, or – even if it had not – the ground would apply anyway. Such petitions were required to be listed for a preliminary hearing for the court to determine whether it was likely that an order under section 122 would be made having regard to the coronavirus test.
The claimants were freehold owners of properties of which the respondent company was appointed managing agent in 2014. They discovered that the respondent had failed to account to them for all of the rents due since 2014, although some rent had been paid into an account. The respondent argued that this was on the claimants’ instruction but the claimants denied all knowledge of the account.
In August 2020 the claimants demanded the sum of £65,000. The company failed to pay that sum or to secure or compound it to the claimants’ satisfaction, and in October 2020 they presented a winding up petition. The petition was dismissed by a judge at a preliminary hearing in February 2021 on the basis that, having regard to the coronavirus test, it was not likely that the court would be able to make a winding up order under the 1986 Act. The claimants appealed.
Coronavirus had had an effect on the company and so it was for the claimants to satisfy the court that the company was unable to pay its debts as they fell due, even if coronavirus had not had an effect. They needed to demonstrate that if they had notified the company of its alleged indebtedness and made a demand for payment prior to the pandemic the company would have been unable to satisfy it. Instead, they relied solely upon the alleged non-payment of rent 2014-2019/20. The judge was entitled to consider all the relevant facts – undisputed evidence as to the company’s procedures and that no formal complaint was made by the claimants until June 2020 – and to conclude that the onus on the claimants had not been satisfied.
Louise Clark is a property law consultant and mediator
