Rebecca Taylor, Solicitor in our Dispute Resolution team, discusses the temporary restrictions imposed by the Corporate Insolvency and Governance Bill

On 20 May 2020, the government introduced the Corporate Insolvency and Governance Bill in Parliament. The Bill temporarily restricts the use of statutory demands and winding-up petitions.

Schedule 10, Part 1 of the Bill provides that no petition for the winding up of a company may be presented on the basis that the company has failed to satisfy a statutory demand which was served in the period beginning with 1 March 2020 and ending with 30 June 2020 (or one month after the coming into force of the Schedule, whichever is the later).

The Bill further provides (Schedule 10, Part 2) that a petition for the winding up of a company may not be presented in the period beginning with 27 April 2020 and ending with 30 June 2020 (or one month after the coming into force of the Schedule, whichever is the later) unless the creditor has reasonable grounds for believing that coronavirus has not had a financial effect on the debtor company or the facts by reference to which the relevant ground applies would have arisen even if coronavirus had not had a financial effect on the company.

The Bill has not yet received royal assent. MPs will next consider all stages of the Bill on 3 June 2020. However, when the Bill becomes an Act of Parliament, it will have retrospective effect.

On 2 June 2020, in A Company (Injunction To Restrain Presentation of Petition) [2020] EWHC 1406 (Ch), Mr Justice Morgan considered the Bill which is yet to be enacted. A high street retailer applied for an order restraining the presentation of a winding-up petition. Mr Justice Morgan granted the company’s application. He said:

“8.  At the end of the hearing, I indicated that I would make an order, until the hearing of the company’s application for a final order to the like effect, restraining the presentation of the winding up petition on the ground that I was satisfied that that was the appropriate order to make in the light of the submissions based on the CIG Bill. 

16. If these provisions of the CIG Bill are enacted in their present form, then their effect will be clear. The policy of these provisions in the CIG Bill is self-evident.

17. At the hearing, I was given information as to the stage in the Parliamentary procedures which the CIG Bill has reached and also information as to when it is expected that the CIG Bill will receive the Royal Assent. Counsel for the company explained that the current expectation is that the CIG Bill will receive the Royal Assent by the end of June 2020. As to the likelihood that schedule 10 of the CIG Bill will be enacted in more or less its current form, I have been referred to a number of ministerial statements as to the Government’s commitment to enact this legislation and I feel a high degree of confidence that schedule 10 will be enacted in more or less its current form and on the timetable referred to above.

18. It the petition were presented today or in the near future, it is most unlikely that it would be heard before the CIG Bill is enacted. As indicated earlier, once enacted, the relevant provisions are to be regarded as having come into force on 27 April 2020. This means that, on the hearing of the petition, a court must ask itself whether coronavirus has had a financial effect on the company before the presentation of the petition. If that is held to be the case, then the court can only wind up the company if it is satisfied that the facts on which the petition is based (under section 123(1) or (2)) would have arisen even if coronavirus had not had a financial effect on the company.

19. I have been provided with a substantial body of evidence as to the effect of coronavirus on the finances of the company and whether the facts on which the petition would be based would have arisen even if coronavirus had not had a financial effect on the company. On 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 on which the petition would be based would not have arisen if coronavirus had not had a financial effect on the company. This means that it appears that a petition to wind up the company would not result in the court making a winding up order.

25. In the present case, the creditor wishes to invoke the procedures of the court to present a winding up petition. On my assessment of the relevant circumstances, the creditor wishes to do so where it is improbable that the court will make a winding up order but where the existence of a presented petition will cause serious damage to the company. In those circumstances, I consider that, as a matter of law, I am able to take into account my assessment of the likelihood of the change in the law represented by schedule 10 to the CIG Bill. Having taken that assessment into account, 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 light of the above, it is necessary to consider the implications of the Bill before it is enacted.

If you require any advice in respect of a statutory demand served on a debtor or received by you, please contact Andrew Ryan (Partner and Head of the Dispute Resolution department) or myself on 0161 832 3304.

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