Insolvency: the High Court shows restraint in presenting winding up orders

Jonathan Gorman, Associate in the Russell-Cooke Solicitors, restructuring and insolvency team.
Jonathan Gorman
3 min Read

The Corporate Insolvency and Governance Bill ("the Bill") continues to make its way through Parliament, with a raft of measures designed to help companies adapt to the economic and practical threats posed by coronavirus and the Government lockdown.

One of the new measures in the Bill introduces a restriction on the presentation of winding up petitions where coronavirus has had an adverse financial effect on the company, in seeking to protect companies facing the threat of insolvency proceedings because of short-term cash flow difficulties arising from the pandemic.

Although the Bill has not yet been passed into law, lawyers for creditors and debtors (particularly commercial landlords and tenants) have been arguing for weeks about the impact of the draft legislation.

Latest developments

On 2nd June, the High Court made an interim order restraining the presentation of a winding up petition against a high street retailer who faced the threat of a winding up petition from their landlord.

The order was made in private, but the judge decided to publish the judgment on an anonymous basis, because the points raised in argument might arise in other cases in the near future. It seems that the judge deliberately sought to put down a marker and this is likely be good news for tenants and bad news for landlords.

In this case:

  • The tenant company raised arguments that use of the insolvency process of presenting a winding up petition against them by their landlord was improper. The tenant’s financial position was generally healthy and presenting a winding up petition was detrimental to an entire class of creditors (arguing that if the tenant was wound up all creditors were at risk of suffering because one landlord was seeking to extract payment). They also argued that the making of a winding up petition would soon be impacted by the Bill, and that the tenant would be protected by that legislation once passed, if enacted as currently drafted.
  • The judge granted an interim order blocking the presentation of a winding up petition. This is only a temporary order because the landlord was not represented at the hearing, and so the landlord has an opportunity to argue against what the judge has said on this temporary basis.

However, this order is probably illuminating of the Court’s approach in the current circumstances, whilst we wait for the Bill to be passed into law. The Judge specifically said that he had taken the likely change in law into effect, and that he considered the Court was entitled to alter its approach based on such a likely change in the law.

What does this all mean?

Since the Government’s proposals to introduce limits on Statutory Demands and Winding Up Petitions have been announced, arguments have been fought about whether the Government’s policy has any binding effect before it becomes law. The Court has now made clear that it is having regard to the draft legislation and it will take steps to preserve the status quo pending formal legislation.

Of course each case depends on its facts, but the recent judgment is likely to provide some comfort to tenants and debtors and will probably force landlords to pursue alternative routes for the recovery of sums due; though the Bill does leave open the possibility of winding up companies that would be facing an insolvency situation regardless of Coronavirus.

Further information about the proposed legislative changes can be found on our coronavirus hub.

Briefings Business Russell-Cooke Thomas Bond insolvency legislation reform Bill winding up orders