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Director fails to convince Court that a Winding Up Petition should be restrained for Covid-19 reasons

winding up petition

In Shorts Gardens LLB v London Borough of Camden Council [2020] EWHC 1001 (Ch) the court found that the director’s application to restrain a winding up petition was without merit.

The case involved winding petitions presented by two Councils against two organisations which were connected in relation to unpaid business rates.

There had been a history of litigation with the arguments that there was no liability for business rates as the properties were being occupied for the charitable purpose of storing property for homeless people.

The application sought an injunction on the basis that the debts were genuinely disputed and that the petitions ought not to proceed by reason of the Covid-19 pandemic and the recent government announcement regarding the presentation of winding up petitions.

Even though new legislation to restrict the winding up of companies during the course of the pandemic had not yet been enacted the Court ruled on the basis that it was likely to be limited to certain specified sectors of the economy and to statutory demands and petitions based on claims by landlords for rent arrears. The court also anticipated that the restrictions would only apply where the reason for a company’s inability to pay its debts was due to Covid-19.

The Court ruling suggests that if companies do not fall within the relevant economic sectors which were granted protection and referred to in the government announcement, and where the reason why they had not paid their debts was unrelated to Covid-19, an injunction to prevent the presentation of a winding up petition would not be granted.

In this case the Judge noted that although the evidence produced to support the restraint of a petition made statements about the economic effect of Covid-19, the evidence did not actually go so far as to assert that the companies were unable to pay their debts as a result of the effects of Covid-19. Most of the unpaid debts predated the impact of Covid-19 and had been previously contested for entirely different reasons. The companies’ financial difficulties were longstanding and had not resulted from Covid-19.  As a result, the Judge did not accept that the government intended the new legislation to apply to the petitions which were not based upon arrears of rent, but on outstanding court orders and arrears of rates.

Until the legislation is released there may well be further arguments heard by the Court and the decisions reached by the Court may well be fact specific.

Darren Stone