New insolvency law prevents petition against High Street retailer

A landlord has been prevented from presenting a winding-up petition against a High Street retailer which had been unable to pay its rent as a result of the Coronavirus pandemic.

By Mark Aspin Director & Head of Dispute Resolution

The High Court ruled that such a petition would be likely to contravene the new Corporate Insolvency and Governance Act 2020.

Neither company was named in the hearing.

The court heard that the retailer had leased premises from the landlord. In March 2020 it was forced to suspend trading due to the Coronavirus pandemic and consequently failed to pay its rent and service charges.

However, the landlord was unable to seek forfeiture of the lease due to the Coronavirus Act 2020. On or around 15th April 2020, the landlord served a statutory demand relating to the arrears of rent and service charge and filed an e-petition seeking the winding-up of the retailer.

The retailer sought to restrain the presentation of the petition, claiming that it was bound to fail, had been brought for a collateral purpose and was an abuse of the process of the court. In making these submissions it also relied on provisions concerning winding up contained in the Corporate Insolvency and Governance Act 2020.

These provisions provided that no petition for the winding up of a registered company could be presented on or after 27th April 2020 on the ground of non-compliance with a statutory demand where the demand was served during the relevant period which began on 1st March 2020 and ended on 30th June 2020.

Any creditor who sought to present a petition had to have reasonable grounds for believing that (a) Coronavirus had not had a financial effect on the company; or (b) the same situation would have arisen even if Coronavirus had not had a financial effect on the company.

The Bill had not been passed at the time of the hearing but was due to receive Royal Assent by the end of June, and ministerial statements indicated that it would be enacted in its existing form.

The court rejected the petition. It held that in certain circumstances, it could take into account the possibility of a change in the law.

That meant that the court had to ask itself whether Coronavirus had a financial effect on the retailer before the presentation of the petition. If that was the case, then the court could only wind it up if it was satisfied that the facts on which the petition was based would have arisen even if Coronavirus had not had a financial effect.

On the evidence presented to the court, there was a strong case that Coronavirus had had a financial effect on the retailer, and the facts on which the petition would be based would not have arisen if Coronavirus had not had that financial effect.

It therefore appeared that a petition to wind up the company would not result in the court making a winding up order. Furthermore, the evidence showed that the presentation of a petition which would ultimately fail would nonetheless have a seriously damaging effect on the retailer.

If you would like more information about the issues raised in this article or any aspect of debt control and insolvency law please contact Mark on 01228 516666.