A Company (Application To Restrain Advertisement)

The court considered an application by a company to restrain advertisement of a winding up petition presented on 1 May 2020 and to restrain presentation of further petitions by two other creditors. Central legal issues were the effect of Schedule 10 to the Corporate Insolvency and Governance Bill (the CIG Bill) on petitions and the exercise of the court's discretion to grant interim injunctions.

The judge concluded that paragraph 1 of Schedule 10 would be fatal to any petition based solely on a statutory demand served between 1 March and the relevant cut-off, but that the petitioner could rely instead on section 123(1)(e) of the Insolvency Act 1986 (failure to pay a formal demand pre-dating the statutory demand) and could seek permission to amend the petition. The court found that, on the material before it, the petitioner had reasonable grounds under paragraph 2(4)(b) of Schedule 10 to believe section 123(1)(e) would apply even ignoring coronavirus, but that paragraph 5(1)(c) of Schedule 10 required the company to show that coronavirus had had a financial effect on it before presentation. The Company did show a prima facie financial effect but the petitioner had not, on the evidence, established that the s.123(1)(e) ground would be satisfied even if coronavirus were disregarded.

Given that (i) the CIG Bill may be enacted in similar terms; (ii) there was no real chance on the present evidence of a winding up order being made; and (iii) the Company was engaged in a commercially sensitive restructuring, the court granted an injunction restraining advertisement (and restraining the other respondents from presenting petitions) until further order, with liberty to apply and the usual cross-undertaking in damages.

This was an anonymised first instance hearing of an application by a company for injunctions to (a) restrain advertisement of a winding up petition presented by the first respondent on 1 May 2020 and (b) restrain the second and third respondents from presenting their own winding up petitions based on statutory demands served on 27 March 2020. The petition relied on a statutory demand (served within the period protected by the proposed CIG Bill) and on an earlier formal demand dated 24 January 2020 under a loan agreement.

The main factual background was that the company had failed to repay or service loans due from January 2019, had made intermittent interest payments which ceased in May 2019, and had not responded substantively to demands culminating in the formal demand of 24 January 2020. The company said that a funding drive in early 2020 for approximately US$10m was halted by the onset of the coronavirus pandemic and adduced limited documentary evidence of those financing arrangements.

The court was asked to determine four issues agreed for the adjourned hearing: (1) whether paragraph 1 of Schedule 10 to the CIG Bill would permit the petition to proceed; (2) whether paragraphs 2–21 of Schedule 10 would permit the petition to proceed; (3) whether the court should factor the CIG Bill into its discretionary exercise even though it was not yet enacted (the parties agreed it should); and (4) whether it would be oppressive or unfair to allow advertisement in light of the potential retrospective protective effect of the Bill.

The court held that paragraph 1 would preclude a petition based solely on a statutory demand served between 1 March 2020 and the later cut-off, but that the petitioner could instead rely on s.123(1)(e) because a prior formal demand of 24 January 2020 had not been complied with and the petitioner could seek permission to amend. Under paragraph 2(4)(b) the petitioner had reasonable grounds to believe that s.123(1)(e) would apply even if coronavirus had not had a financial effect on the company. Paragraph 5(1)(c) required the company to show that coronavirus had had a financial effect before presentation; the judge found that the company had made out a prima facie case of a financial effect (a low threshold). However, paragraph 5(3) would require the petitioner, at the hearing of the petition, to satisfy the court that s.123(1)(e) would apply even if coronavirus had not had a financial effect; on the present evidence the court could not be satisfied of that and therefore there was no real chance of a winding up order being made.

The court therefore exercised its discretion to grant an injunction restraining advertisement of the petition (and restraining the second and third respondents from presenting petitions) until further order, on the usual cross-undertaking in damages, but permitted the petitioner liberty to apply to lift the restraint on production of further evidence.

First instance: The court granted an injunction restraining advertisement of the winding up petition and granted injunctions restraining the second and third respondents from presenting winding up petitions until further order, on terms including the usual cross-undertaking in damages. The injunctions were interim because the CIG Bill was not yet law and further evidence might be adduced; the petitioner was given liberty to apply to amend the petition and to seek to lift the restraint on advertisement by producing further evidence to satisfy the tests in Schedule 10.