Company – Winding-up petition – Injunction – Claimant unable to pay rent on commercial properties due to lockdown caused by coronavirus – Respondent landlords giving notice of intention to present winding-up petition – Claimant applying for injunction to restrain presentation of petition – Whether petition bound to fail as result of imminent legislation – Whether petition adverse to class of creditors as whole – Application granted
The claimant was a company with a hotel business in the United Kingdom. As a result of the lockdown caused by COVID-19, the revenue dropped by approximately 95% but the evidence showed that the claimant had at least the possibility of strong rebound performance if the problems caused by the pandemic lifted in the reasonably foreseeable future. A turnaround plan had been proposed, which it was hoped would be agreed on a consensual basis, but if that could not be done it was proposed to make a company voluntary arrangement (CVA).
A major aspect of the turnaround plan involved a proposal to divide the landlords into three categories some of which would be repaid on more favourable terms than others. On the other hand, if the business was wound up or in administration it was very likely that the landlords would have nothing at all in terms of arrears.
The respondents were the landlords of two properties held by the claimant under 25-year leases, which began in December 2019 and January 2020. The respondents gave notice that unless they received payments of rent arrears, a winding-up petition would be issued without further notice.
The claimant applied for an injunction to restrain presentation of the winding up petition on short notice seeking to restrain presentation of the petition for a short period, over 14 days,
The claimant contended that the petition was bound to fail as a result of imminent legislation and was adverse to the class of creditors as a whole; in either case, the petition was an abuse, was bound to fail and should be prevented.
Held: The application was granted.
(1) As the coronavirus crisis began, the government announced that it would be making changes to insolvency law by temporarily banning the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April through to 30 June, where a company could not pay its bills due to the coronavirus. Under the proposed measures, any winding up petition which claimed that the company was unable to pay its debts would first have to be reviewed by the court to determine why. The court would not permit petitions to be presented or winding-up orders made where the company’s inability to pay was the result of COVID-19.
The claimant was highly likely to be the sort of hospitality business the legislation, as described in a government press release, was intended to cover and was in the sort of situation envisaged. Both the landlord and the tenant in this case were commercial, the petition related to arrears of rent and it was clear that the financial difficulties faced by the claimant were the result of COVID-19.
(2) There was no rule of law that impending legislative change was never a material consideration in the exercise of the court’s powers and discretions. Everything turned upon the subject matter and the relevance of the pending legislation or possibility of change to the issues before the court. The court did not necessarily always have to make its decision only on the basis of the law as it stood. In a proper case, the court could take into account imminent changes in the law. It was highly likely that the proposed legislation would cover the situation in the present case which the court could take into account. It was never certain what would happen, and one did not know exactly how the legislation would be formulated or when it would take effect. But taking all those factors into account, it was right to grant the injunction sought, at least at the interim stage, for 14 days to restrain the presentation of the petition: Short Gardens v Camden London Borough Council [2020] EWHC 1001 (Ch); [2020] PLSCS 77 distinguished. Hill v Parsons [1972] 1 Ch 305 and Sparks v Harland [1997] 1 WLR 143 considered.
(3) On the evidence before the court, the petition would be adverse to the interest of the class of creditors as a whole having regard to the situation in which the claimant found itself. There was likely to be a nil return on a winding up. The turnaround proposal was likely to produce a better return for all creditors than the nil dividend they would receive from a winding up. Allowing an insolvency process like the present petition to be presented would jeopardise the proposed turnaround and the ability to have that proposal accepted either consensually or via a CVA. The terms of many of the leases held by the claimant would lead to them being terminated if a petition was presented.
There was no evidence of any other reason why a winding up petition should be presented. There were no transactions at an under value said to have taken place and there was positive evidence that the claimant’s advisers were making sure that their future trading would comply with the relevant law. It was also clear from the correspondence that the purpose of the threat of the petition was to seek payment for the respondents as creditors, advancing their interests ahead of other creditors. Although that was not a justification for refusing the petition, it was a factor which the court was entitled to take into account.
(4) It would be an abuse to allow the petition to proceed where, as in the present case, the petitioner did not really want to obtain liquidation or bankruptcy of the company, but issued or threatened to issue proceedings to put pressure on the company to take some other action which it was otherwise unwilling to take; and where the petitioner did want to achieve the relief sought but was not acting in the interests of the class of creditors of which he was one, or where the success of his petition would operate to the disadvantage of the body of creditors. Accordingly, an injunction would be granted for 14 days to restrain presentation of the winding up petition: Maud v Aabar Block [2015] EWHC 1626 (Ch) followed.
Adam Al-Attar (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) appeared for the claimant; The respondents appeared by their representatives.
Eileen O’Grady, barrister
Click here to read a transcript of Travelodge Hotels Ltd v Prime Aesthetics Ltd and others
