IBB Law obtains winding up order in spite of the Corporate Insolvency & Governance Act (CIG)

Usually obtaining a winding up order would not make the front page, but the Corporate Insolvency & Governance Bill (CIG), which came into force on 25 June 2020, changed everything.   Therefore, it has become interesting times in the insolvency world.  As such, this Bill (and now Act) represented a significant hurdle to IBB’s client.

On 28 March 2020, just after lockdown commenced, the government announced its intention to introduce legislation to reform insolvency in light of the COVID emergency.  The Bill was first published in May 2020.  It provided that from the date of the Act until the end of June 2020, or 1 month after its coming into force, any winding up order based on a petition presented after 27 April 2020 and based on a demand served after 1 March 2020 would be void, except for a few limited circumstances.

Now this was tricky, as on 1 March 2020, no-one had any idea that this Bill would be drafted, let alone in force a few short months later, indeed back in those halcyon days we were all still in offices, having lunches whilst our kids were at school and had no idea that on 23 March 2020 lockdown would start and months later we would still be working from home.

Companies in receipt of statutory demands started applying, successfully, for injunctions, see Re A Company [2020] EWHC 1406 (Ch) and Travelodge Ltd v Prime Aesthetics Ltd [2020] EWHC 1217 (Ch) to prevent petitions being issued on the grounds that if there were any subsequent winding up order made, it would be void under the proposed legislation, which at that point had not even been before Parliament.  Indeed Birss, J decided the Travelodge case before the publication of the Bill and based on what had been said in ministerial statements.  Debts were being run up left, right and centre by companies unable to keep the lights on whilst staff were on furlough and income streams dried up overnight.  Rent went unpaid and the Government enabled businesses to borrow unprecedented sums on Government backed schemes.

Yet, there are companies out there who’s insolvency is really nothing to do with COVID 19, the pandemic or even the lockdown.  They were already insolvent, and it would cause a grave injustice to the creditors to not enable them to be put into liquidation. IBB’s client fell into this category.

Schedule 10 of the CIG Bill provided no petition could be presented to the Court on or after 27 April 2020, in respect of a statutory demand which had been served on a company in the period between 1 March 2020 and one month after the coming into force of Schedule 10, this was later extended in the Act to a period 1 March 2020 to 30 September 2020.  We were able to satisfy the Court that despite the statutory demand being served after 1 March 2020, the Petition was presented prior to 27 April 2020 and there was no COVID 19 related reason for non-payment of the debt.

In this instance the debt was a loan paid into the company years before by one of the two directors.  The company’s accounts said it had a term of 3 years, yet it appeared that it was never repaid to the director.  The director died and her estate demanded the repayment of the loan.  When it was not repaid it was discovered that money had been taken from the company by the remaining director, and a satisfactory explanation was not forthcoming.  Just as the process was coming to a conclusion, it collided headlong with the new legislation.  However, the Court was satisfied that under s123(e) of the Insolvency Act 1986 that the Petition with a minor amendment met the relevant criteria and had taken the CIG into account and made the order.

So, any other day of the week, an order for the winding up of a company would not feel remarkable… it did last week.

Sarah Jackson and Jonathan Allen acted for the Petitioning Creditor

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Our dedicated team of specialists have a wealth of commitment, experience and knowledge in advising on all aspects of restructuring and insolvency. Contact Sarah Jackson by email or call 01895 207927