Anticipated Insolvency Law Changes Prevent Winding Up

I have written previously about the likely coming into force of the Corporate Insolvency & Governance Bill (CIGB), including the impact on winding up petitions brought during the COVID-19 lockdown period. [Read article] 

Although the CIGB has not yet become law, this question has come before the courts in the past few weeks. In this case, a high street retailer had needed to close its premises and had been unable to pay rent and service charges owing on its trading premises. The landlord brought a winding up petition, having previously issued a statutory demand in relation to those unpaid sums.

One of the provisions of CIGB is that a statutory demand may not be used to present a winding up petition between 1 March 2020 and either 30 June 2020 or (as will likely be the case) one month from the enactment of the CIGB. For the provision not to be effective, the creditor would need to establish at the court hearing that the retailer had not suffered a financial effect from COVID-19, or that the facts on which the petition were founded would have arisen even if COVID-19 had not had a financial effect on the retailer.

In this situation, with a winding up petition having been presented, the retailer applied for an injunction to prevent the winding up petition. The retailer’s reasoning was that by the time the application would be heard, the CIGB or equivalent bill would have been enacted. As it happens, the CIGB has not yet received Royal Assent, but the judge considering the case agreed that the winding up petition should not be allowed to proceed on the basis that a change in the law was likely, and the court should not be considered as powerless to act.

With exclusions in the bill, it is clear that there are provisions to ensure that this temporary provision will not affect all winding up petitions that might be brought, but creditors must remain cautious as to their ability and entitlement to present such a petition. This is a temporary provision to protect companies which are in distress and prevented from trading normally, and once the provision is no longer effective, creditors should be able to bring winding up petitions without that same constraint.

The CIGB is currently being debated in Parliament, and it is anticipated that it will come into force as new corporate insolvency legislation by the end of June 2020, so the temporary effects would be in force for a while longer. There is also the possibility that these provisions might be extended or reintroduced in the event of a longer or second lockdown arising.

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