Company – Winding-up – Injunction – Claimant applying for injunction to restrain petitioner from advertising winding-up petition – Whether court should take account of likelihood of change in law in deciding whether to exercise discretion – Application granted
In April 2020, the government announced its intention to introduce legislation to protect debtors affected by the coronavirus crisis. In May, the Corporate Insolvency and Governance Bill (the CIG Bill) was presented to parliament, expected to receive Royal Assent by the end of June.
Paragraph 1 of schedule 10 to the CIG Bill provided that no petition for the winding up of a registered company might be presented under section 124 of the Insolvency Act 1986 on or after 27 April 2020 on the ground specified in section 123(1)(a) (non-compliance with a statutory demand), where the statutory demand was served between 1 March 2020 and the later of 30 June 2020 and one month after schedule 10 was regarded as coming into force on 27 April 2020.
The first defendant presented a winding-up petition against the claimant on 1 May 2020. The petition was in the sum of £160,697 and relied upon a statutory demand dated 19 March 2020 served on 27 March 2020 concerning loan debts claimed to be due under a loan agreement dated 24 September 2018. The petition was due for its first hearing on 17 June 2020.
The claimant sought an injunction to restrain the first defendant from advertising the petition and from proceeding with it generally; and injunctions restraining the second and third defendants from presenting their own petitions based on statutory demands.
At an adjourned hearing of the application to restrain advertisement, the issues were: (i) whether paragraph 1 of schedule 10 to the CIG Bill would, if enacted, permit the petition to proceed; (ii) whether paragraphs 2 to 21, if enacted, would permit the petition to proceed; (iii) whether the court should factor the CIG Bill into the exercise of its discretion when the bill had not yet been enacted; and (iv) whether, in the exercise of the court’s discretion, it would be oppressive and unfair to wind up the claimant.
At the hearing, it was common ground that the court should factor the provisions of the CIG Bill into the exercise of its discretion in the light of Re a Company (Injunction to Restrain Presentation of a Petition) [2020] EWHC 1406; [2020] PLSCS 112.
Held: The application was granted.
(1) In the present case, the petition was presented on 1 May 2020 and relied, at least in part, on a statutory demand served on 27 March 2020. On the face of it, it was in principle open to the defendant to rely upon section 123(1)(e) (company unable to pay debts as thy fall due) in place of section 123(1)(a) and to amend the petition for that purpose. Paragraph 1 would not preclude that. No good purpose would be served by refusing permission to amend in such circumstances. Given that the petitioner had indicated that it intended to seek permission to amend, and the likelihood that such permission would be granted, at the present stage in the petition the court ought not to proceed, for the purposes of the current application, on the footing that para 1 of schedule 10, if enacted, would be fatal to the petition .
(2) Under paragraph 2 of schedule 10 the defendants had to show that, as at the date of presentation, it had reasonable grounds for believing that coronavirus had not had a financial effect on the claimant (paragraph 2(4)(a)); or that the relevant ground (in this case section 123(1)(e)) would apply even if coronavirus had not had a financial effect on the claimant (paragraph 2(4)(b)). On the evidence before the court, the defendants satisfied paragraph 2(4)(b). At the time of presentation, the defendants had reasonable grounds for believing that section 123(1)(e) would apply even if coronavirus had not had a financial effect on the claimant. In determining whether the defendants had reasonable grounds for the purposes of paragraph 2(4)(b), account had to be taken of events known to the defendant occurring between January and the date of presentation. On the evidence, when the petition was presented, the defendant met the condition in paragraph 2(4)(b).
(3) The claimant also met the threshold requirements of paragraph 5(1)(c). That was clearly intended to be a low threshold. The requirement was simply that “a” financial effect had to be shown: the pandemic did not have to be a cause of the claimant’s insolvency. Moreover, the requirement only that it should “appear” to the court that coronavirus had a financial effect on the company before presentation of the petition, was in marked contrast to paragraph 5(3), where the court was required to be “satisfied” of given matters. The term “appears” must have been intended to denote a lower threshold than “satisfied”. The evidential burden on the company for those purposes had to be to establish a prima facie case, rather than to prove the financial effect relied upon on a balance of probabilities. Applying those principles, there was adequate evidence that a funding drive was underway by the claimant in late December 2019/early January 2020 which was stopped in its tracks by the onset of the pandemic. The sudden halting of the funding drive was a financial effect of the pandemic for the purposes of paragraph 5(1)(c).
(4) On the evidence as it stood, it would be oppressive and unfair to allow advertisement. The claimant was in the process of engaging in a restructuring exercise with its unsecured creditors. The adverse publicity surrounding the presentation of a winding-up petition at this commercially sensitive time would plainly be detrimental to the claimant and would serve no purpose if there was no real chance that a winding-up order would be made.
(5) The court would grant an injunction restraining advertisement, on terms that the claimant provided the usual cross-undertaking in damages. Given that the CIG Bill was not yet law and indications that there might be further material on the issue of whether section 123(1)(e) would apply even if coronavirus had not had a financial effect on the claimant, the injunction would not be permanent. Until further order, the defendant would be at liberty to apply to lift the restraint on advertisement on production of further evidence.
Unless suitable undertakings to like effect were offered, the court would also grant injunctions restraining the second and third defendants from presenting winding-up petitions until further order, again with liberty to apply.
Ian Rees Phillips (instructed by John Fowlers LLP) appeared for the claimant; Lauren Kreamer (instructed by TTMK Solicitors) appeared for the defendants.
Eileen O’Grady, barrister
