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Winding Up Petitions - Update

View profile for Jeremy Lederman
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This is a brief update on restrictions on the issue of winding up petitions and making of winding up orders in light of the recent publication of the Corporate Insolvency and Governance Bill 2020

The proposed changes are part of a wider revision of company and insolvency law. They have been produced due to the perceived problem of creditors serving statutory demands and issuing winding up petitions against companies for unpaid debts (most notably by commercial landlords on business tenants) arising from the effects of Covid- 19. This update relates to proposed changes of the law as regards winding up petitions and orders only.

The Bill is not law until passed by Parliament.  It is being “fast- tracked”. It is understood that Parliament will consider it on 3 June 2020.

In the recent case of Travelodge Hotels Limited v Pride 6 May 2020 (unreported as yet) and a line of cases prior to that, the Court has made orders in anticipation of laws coming into effect. In that case the court made an injunction restraining issue of a winding up petition in anticipation of the Bill prior to its publication. It is suggested that the Court is likely to make orders taking account of the aims of the Bill or some of them.

Some caution has to be applied as the Bill has to be scrutinised and is subject to debate and amendment. It is submitted it is still instructive and of use.

The Bill

The proposed below changes as regards winding up petitions and orders are of a temporary nature. The Bill is to have retrospective effect.

Issuing winding-up petitions for debts owing will be heavily restricted for the period from 1 March 2020 to 30 June 2020 or, if later, one month after the coming into effect of the Bill. The Government have said this time period is capable of being extended.

A key point is that the restrictions apply to all debts and not just those for rent due from landlords to tenants, as had been thought from prior Government announcements and cases. 

The Bill looks to completely stop winding-up petitions from being issued at court where they are based on a statutory demand served between 1 March 2020 and 30 June 2020 or, if later, one month after the Bill comes into effect. A statutory demand is a notice in requisite form requiring payment within 21 days.

There are additional provisions that a creditor will not be able to issue a winding-up petition on the basis that a company is unable to pay its debts, unless it can show:-

  1. it has reasonable grounds for believing that Covid 19 has not had a financial effect on the company; or
  2. that the facts would have arisen without Covid 19.

These conditions seem very hard to show.

This seems to be an overlap of the above but this could relate to winding up petitions where no statutory demand has been served.

To obtain a winding up order on petitions issued from 27 April 2020, a creditor will also need to be able to satisfy the Court of the above conditions.

Where winding up orders are made on the basis the company is unable to pay its debts, between 27 April 2020 and the Bill coming into effect, the Court can void such orders if it is of the view the creditor would not have been able to show the above conditions. The court can make orders with the aim of restoring the company to its position before the winding up petition was issued. It is questioned how this will work in practice, but perhaps an analogy would be where winding up orders are annulled from time to time.

Thoughts on the way forward 

The Bill is subject to amendment and debate and is not yet law.

Prior cases are subject to further argument and/ or appeal.

The Bill will be welcomed by debtors facing statutory demands and threats of winding up petitions.

The Bill may be used by debtors to help obtain an injunction to restrain issue of a winding up petition, advertisement of the same or the making of a winding up order.

Following Travelodge, debtors may wish in addition and it may be safer to do so, be able to prove that they have had a dialogue with their creditors, provided information and proposals for payment and show that if their proposals are accepted, creditors will likely be in a better position than on a winding up. This would assist in persuading the Court it should “hold the ring” rather than allow winding up proceedings to be issued or make a winding up order.

For further information please contact Jeremy Lederman

The above is for general guidance only and not to be relied on without specific legal advice.

Winding Up Petitions - Update

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