Re: A Company (Injunction to restrain presentation of petition) [2020] EWHC 1406 (Ch) and the Corporate Insolvency and Governance Bill

June 5, 2020

By Jodie Wildridge

Despite not yet being in force, the Corporate Insolvency and Governance Bill (CIGB) is already causing a stir.

The ex-parte hearing in Re: A Company (Injunction to restrain presentation of petition) [2020] EWHC 1406 (Ch), took place, in private, on 1 June 2020 before Mr Justice Morgan. Judgment was, unusually, handed down in open Court on 2 June 2020 because of the likelihood that the issues raised in the case will present themselves in other cases in the near future.

Facts

An urgent, albeit on notice, application was made by a Company to restrain the presentation of a winding up petition following service of a statutory demand upon it by the Creditor on or around 15 April 2020.[1]

The Creditor was the lessor of a retail unit, of which the Company was the lessee; and the statutory demand was made on the grounds of unpaid rent and service charges. The Creditor was unable to seek forfeiture of the lease by reason of section 82 of the Coronavirus Act 2020.

The Creditor had e-filed a winding up petition in relation to the Company following service of the statutory demand; but had failed to pay the Court fee. Accordingly, the petition was not, at the time of the hearing of the Company’s application, considered to have been presented. However, the Creditor had declined to give an undertaking not to present the petition.

The Company’s application to restrain the presentation of the petition was made on a number of grounds; but at the hearing, upon the invitation of Mr Justice Morgan, submissions focussed upon the significance of the relevant provisions, as set out below, of the CIGB.

Application of the CIGB

The relevant paragraphs of Schedule 10 of the CIGB have been examined in detail by the author previously (see here).

In particular, the Judge was mindful, as regards Schedule 10 of the CIGB, that:

pursuant to paragraph 1, no petition could be presented to the Court on or after 27 April 2020, in respect of a statutory demand which had been served on a company in the period between 1 March 2020 and one month after the coming into force of Schedule 10;
pursuant to paragraph 2, winding up petitions founded on a statutory demand could not be presented in the period between 27 April 2020 and one month after the coming into force of Schedule 10 of the CIGB (“the Relevant Period”), unless coronavirus had not had a financial effect on the company;[2] or, unless the facts by reference to which the relevant ground applies would still have arisen if coronavirus had not had a financial effect on the company;
pursuant to paragraph 4, where a petition had been presented in the period on or after 27 April 2020, but before Schedule 10 of the CIGB comes into force, if the Court is satisfied that the petition should not have been presented pursuant to the above provisions:
“…the court may make such order as it thinks appropriate to restore the position to what it would have been if the petition had not been presented”; and
pursuant to paragraph 5, where a winding up petition founded on a statutory demand had been presented during the Relevant Period; the company had been deemed unable to pay its debts; and it appears to the Court that coronavirus had a financial effect on the company before presentation of the petition, the Court is only able to make a winding up order where the facts by reference to which the relevant ground applies would still have arisen if coronavirus had not had a financial effect on the company.

In considering these provisions of the CIGB, the Judge was acutely aware that if he decided not to restrain the presentation of the petition, the hearing of the petition would likely take place after the coming into force of the CIGB; and that, once enacted, the provisions relevant to the application were to be regarded, pursuant to the CIGB, as having come into force on 27 April 2020. The result is that at the time the petition would likely be heard, the decision for the Court would be one taken pursuant to the provisions of the CIGB; i.e. the Court would have to decide whether coronavirus had a financial effect on the Company prior to the presentation of the petition; and if so, whether the facts upon which the petition is based would still have arisen even if coronavirus had not had a financial effect on the Company.

The Judge heard submissions from the Company as to the time period for the coming into force of the CIGB (which was expected to receive Royal Asset by the end of June 2020); as well as the likelihood of the CIGB being enacted in its current form (in relation to which, the Judge was referred to a number of ministerial statements as to the commitment of the UK Government as to the Bill’s enactment).

In conclusion, the Judge felt:

“…a high degree of confidence that schedule 10 will be enacted in more or less its current form and on the timetable referred to…”.

Judgment

Fundamentally, the Judge decided that as a matter of law, he was able to take account of the likelihood that the CIGB would invoke a change in the law which would be relevant to his decision in this case. In arriving at that decision, the Judge was keen to point out that “essentially the same conclusion” had been reached in Travelodge Ltd v Prime Aesthetics Ltd [2020] EWHC 1217 (Ch) but that had been based on ministerial statements, as the CIGB had not, at the time of the hearing in that case, been published.

In applying the relevant provisions of the CIBG, and having considered the considerable evidence which had been provided to him on behalf of the Company as to the effect that coronavirus had had upon the Company’s finances, the Judge held that:

“[o]n that evidence there is a strong case (at the lowest) that coronavirus has had a financial effect on the company before the presentation of the petition and, further, that the facts upon which the petition would be based would not have arisen if coronavirus had not had a financial effect on the company”.

The Judge found it “improbable” that the presentation of the petition would lead to a winding up order; and that it would, in the meantime, have a seriously damaging effect on the Company:

“…I consider that the court should control its own processes by restraining the presentation of this petition in the present circumstances. I do not see that the court is powerless to act to prevent its procedures being used otherwise than for the purpose of obtaining a winding up order (because it is improbable that such an order will be made) but for the purpose of, or at any rate with the effect of, causing serious damage to the company. 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 the circumstances therefore, the Company’s application to restrain the presentation of the petition was successful.

Finally, despite the Company relying further on the decision in Travelodge to argue that it ought not to be required to provide the usual cross-undertaking in damages in respect of the injunction, the Judge was not convinced, despite the strength of the Company’s application.

The Judge relied upon the line of authority referred to in JSC Mezhdunarodniy Promyshlenniy Bank and another v Pugachev [2016] 1 WLR 160 (which included reference to the cases of Sinclair Investment Holdings SA v Cushnie [2004] EWHC 218 (Ch) and Financial Services Authority v Sinaloa Gold plc [2013] 2 AC 28). Those authorities indicate that the usual rule as to the provision of a cross-undertaking is founded in fairness, as opposed to the likelihood of loss; and where an injunction is ordered prior to a final determination, “[t]he court cannot be seen to prefer the interests of one litigant over another”.

Accordingly, the injunction in this case was granted on the usual terms that the Company provides a cross-undertaking in damages.

Summary

This decision indicates just how significant the changes proposed in the CIGB are likely to be; and that the policy reasons underpinning the CIGB are likely to run through actions taken, and decisions made, in responding to the effects of this current pandemic.

Jodie Wildridge is a second six commercial pupil at Exchange Chambers who practices in the areas of commercial dispute resolution, insolvency and property and who appears regularly in the District Registries of the High Court and in the County Court on a wide range of matters.

[1] There was issue taken as to the validity of the statutory demand and of the validity of service. However, for the purposes of Mr Justice Morgan’s decision, such issues were not considered.

[2] Pursuant to the CIGB, “…coronavirus has a “financial effect” on a company if (and only if) the company’s financial position worsens in consequence of, or for reasons relating to, coronavirus”.

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