How courts are dealing with Covid-19 business insolvencies

The Corporate Insolvency and Governance Bill 2020 was debated again by MPs this week and will now go to the House of Lords for consideration.

The Bill puts a temporary stop to winding up petitions, unless the financial issues under examination are not related to coronavirus. For more on the Bill, click here.

Three recent English judgements give us an insight as to how the courts are beginning to interpret and apply the Bill in practice. In all such judgments, injunctions were sought seeking to restrain the presentation of winding up petitions by creditors. 

Recent case law

In Shorts Gardens LLP v London Borough of Camden Council [2020] EWHC 1001 (Ch), a judgement made before the Bill was put before Parliament, the court heard two similar applications to injunct (interdict in Scotland) lodged at court following the presentation of two winding up petitions in respect of non-domestic rates and unpaid cost orders. The applicants based their applications on the proposed government measures at the time, citing their inability to pay the debts claimed due to the impact of Covid-19. Following the consideration of the circumstances, Mr Justice Snowden dismissed both applications as for reasons including:

• that the applicants’ evidence did not explain how exactly the applicants could not pay the debts as a result of coronavirus; 
• no financial information as to the applicants’ position was advanced; and
• the majority of the debts claimed pre-dated the impact of the coronavirus.

Mr Justice Snowden concluded that:

“… The reason that SBLT and Shorts Gardens have not paid the debts that they owe has nothing to do with the coronavirus, and they are not the sorts of entity owing the type of liabilities which the proposed legislation seems to be intended to protect. I therefore see no reason to exercise any discretion in favour of the applicants based upon the prospect that legislative measures are to be introduced to assist more deserving companies experiencing genuine financial hardship caused by the effects of the COVID-19 pandemic.”

In A Company (Injunction To Restrain Presentation of Petition) [2020] EWHC 1406 (Ch) Mr Justice Morgan opted to grant an interim injunction, which was also lodged for the purpose of preventing the presentation of a winding up petition, this time by a landlord against its retail tenant.  

Referring to Schedule 10 of the Bill, Mr Justice Morgan granted the application, finding that he had been provided with a substantial body of evidence as to the effect of coronavirus on the finances of the applicant company and also noted that:

“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.”

In Travelodge Ltd v Prime Aesthetics Ltd [2020] EWHC 1217 (Ch), essentially the same conclusion was reached, however the decision in Travelodge was made before the publication of the Bill and was, as with Shorts Gardens LLP, based on what had been said in ministerial statements.

Analysis

This recent wave of judgement has been an interesting insight into how the courts are dealing with Covid in an insolvency context, and these are likely to be indicative of how the Scottish courts will deal with similar cases.

The fact that the English courts are applying provisions within legislation not yet passed will prove useful when Scottish courts begin to see their own wave of new cases. 

Whether you are creditor seeking to enforce payment of a debt, or are a business unable to pay its debts as a result of the coronavirus situation, our Dispute Resolution team who will be able to advise you. We also work closely with a number of independent Insolvency Practitioners.

Click here if there are issues arising from this article that you would like to discuss.