IN THE MATTER OF A COMPANY

For the coronavirus restrictions on winding-up petitions to apply, a company must provide evidence capable of showing that its financial position worsened because of, or for reasons relating to, coronavirus. The evidential threshold is low, but bare assertion and evidence of a post hoc decline are insufficient without detail linking the decline to the pandemic. Long-standing unpaid debts may reasonably support the creditor’s belief that non-payment was unrelated to coronavirus. A speculative claim that a landlord failed to mitigate loss does not create a bona fide dispute of the petition debt. A purported cross-claim must be genuine, serious and supported by evidence capable of raising a triable issue.

A landlord presented a winding-up petition for substantial rent arrears owed by a stone-cutting company. The company relied on the temporary restrictions in Corporate Insolvency and Governance Act 2020, contending that coronavirus had financially affected it. It also alleged that the landlord had failed to mitigate its losses and advanced cross-claims concerning alleged representations about power, water and site security.

The court had to determine whether the statutory coronavirus conditions were satisfied, whether the petition debt was genuinely disputed because of alleged mitigation failures, and whether the company had genuine and serious cross-claims equal to or exceeding the debt.

1. Coronavirus conditions. The petitioner bore the burden of showing reasonable grounds for believing either that coronavirus had not had a financial effect on the company or that the relevant insolvency ground would have applied without such an effect. The long-standing rent arrears, which began well before the pandemic, provided reasonable grounds for that belief. The first issue was therefore determined for the petitioner (paras [10]–[13]).
2. For the second issue, the company bore the burden of establishing that it appeared that coronavirus had had a financial effect. The threshold was low and required only a prima facie case. It nevertheless required evidence with some detail connecting a worsening financial position to coronavirus. Assertions that the business had been affected, use of furlough funding, a decline in cash flow and general evidence about the pandemic did not establish that causal connection. The company’s financial difficulties appeared to pre-date coronavirus and to arise principally from the completed M contract and existing rent arrears. The second issue was determined for the petitioner (paras [14]–[21]).
3. Alleged mitigation failure. The company could not establish a bona fide dispute of the petition debt by alleging that the landlord should have forfeited the lease or accepted a surrender. The company itself appeared not to have mitigated its obligations; the landlord arguably had legitimate reasons to maintain the lease; any recovery in a liquidation was speculative; and the alleged offset could not be quantified reliably (paras [22]–[26]).
4. Cross-claims. The alleged contractual and misrepresentation claims were insufficiently particularised. The evidence did not establish reliance on the alleged representations in entering the lease, and the claims were contradicted by the surrounding circumstances and raised only at a late stage. Applying the approach in Portsmouth v Alldays Franchising Ltd [2005] EWHC 1006 (Ch), assertion alone was insufficient to raise a triable issue (paras [27]–[34]).
5. The petition was directed to be listed for hearing in the winding-up list under paragraph 8.1(2) of the Practice Direction. The judge would consider whether to treat the hearing as a winding-up hearing, dispense with advertisement and make an immediate winding-up order (para [35]).