The Corporate Insolvency and Governance Bill 2020 (CIGB) is expected to be enacted at the end of June or early July and in addition to the permanent introduction of the new restructuring regime, moratorium procedure and the restriction on termination clauses in supply contracts, it is the vehicle by which the government has chosen to enact various temporary measures designed to mitigate the effects of the coronavirus pandemic on businesses.
Temporary provisions contained within Schedule 10 of the CIGB include:
- A restriction on the ability to present a winding up petition based upon a statutory demand served between 1 March 2020 and 30 June 2020 (or one month after the coming into force of the bill, whichever is later, and
- A requirement for all petitions issued on or after 27 April 2020 to contain a statement by the creditor that it has reasonable grounds for believing that the coronavirus has had no financial effect on the company or that if it has, other grounds for winding up would have applied anyway (the coronavirus test)
In the case of Re A Company (Injunction to Restrain Presentation of Petition) [2020] EWHC 1406 (Ch).) Morgan J handed down his judgment on 2 June 2020 in an application by the company for an interim injunction to restrain issue of a winding up petition based upon a statutory demand served on 15 April 2020.
The facts
The company is a high street retailer and lessee of a retail unit. The creditor is the lessor. The company closed the retail unit in accordance with government instructions in response to the coronavirus pandemic. The company failed to pay rent and service charges due under the lease and the creditor was unable to forfeit the lease as a consequence of having been prevented from doing so by the operation of section 82 of the Coronavirus Act 2020. The creditor served a statutory demand on the company on 15 April 2020, this date being prior to the government announcing its intention to introduce legislation to prevent the service of statutory demands in such circumstances.
At the hearing of the injunction application evidence was presented to the court concerning the likelihood of the Bill being enacted without substantial amendment by the end of June 2020.
The judge also took into account the fact that if issued the petition would probably not be heard until after the Bill was enacted in which case at the hearing of the petition the judge would have to take into account whether the coronavirus test had been satisfied.
The judge was satisfied that on the basis of the evidence provided to him there was a strong case that the coronavirus test was satisfied and therefore the petition would ultimately be unsuccessful.
The creditor was not represented at the hearing but in correspondence it had argued that in advance of the CIGB being enacted, there is absolutely nothing to stop the creditor presenting its petition, advertising it and proceeding with it to the date of the hearing. The fate of the petition at the date of the hearing would then depend on whether the CIGB had been enacted in its present form in the meantime.
The judge rejected this argument. He found that it was improbable that the court would make a winding up order based upon the facts and that the existence of a presented petition would cause serious damage to the company. He also found that, as a matter of law he was able to take into account his own assessment of the likelihood of the change in the law represented by Schedule 10 to the CIGB.
In his judgment Morgan J said “I also consider that the grant of an injunction to restrain the presentation of the petition is powerfully supported by the clear policy objectives of the CIG Bill”.
In reaching this conclusion the judge took into account an earlier unreported decision of Birss J in Travelodge Ltd v Prime Aesthetics Ltd [2020] EWHC 1217 (Ch) where he had come to the same conclusion before the draft CIGB was even published, basing his decision purely on what had been said in ministerial statements. Morgan J considered that the position was significantly clearer following publication of the CIGB and evidence as to the speed with which was intended to complete its progress through parliament and receive Royal Assent.
Notwithstanding his views as to the prospects of success of the petition in this case the judge did not feel it appropriate to depart from the usual position of requiring the company to give a cross undertaking in damages as he did not believe that the onus fell upon the creditor to have to show that it was likely he would suffer loss as a result of the injunction.
Comment
When the temporary measures introduced by the CIGB were first announced by the government in April 2020 there was a degree of uncertainty as to the approach that the courts would adopt prior to the introduction of legislation bringing the measures into force. The decision in this case and that of Birss J in the Travelodge case provide clarity in this regard and make it perfectly clear that the courts will give effect to the intention of government in its efforts to mitigate the effects of coronavirus whether or not relevant legislation is in force.
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