Article by Naomh Gibson
On 23 April 2020, the Government announced emergency measures to protect commercial tenants, to include a moratorium on evictions and a temporary ban on the the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to 30 June, in circumstances where a company cannot pay its bills due to COVID-19.
At current time, the scope of the intended restriction and precisely how it will be implemented is unclear. This has understandably left some wondering in which circumstances a winding up petition might be permitted to proceed.
The High Court has now provided such guidance, in Shorts Gardens LLB v London Borough of Camden Council  EWHC 1001 (Ch). This case concerned two applications to restrain presentation of two separate winding-up petitions against different companies by Camden and Preston councils. The petitions relate to unpaid liability orders from national non-domestic rates and certain unpaid costs orders arising out of earlier litigation.
The joint applicant (Saint Benedict’s Land Trust (“SBLT”) and Shorts Gardens) denied liability for the rates and sought injunctive relief on the basis that the debts in question were genuinely disputed on substantial grounds or were subject to cross-claims. The applicant also argued that it would be inappropriate for a winding up petition to be proceeded with, ‘until 14 days after COVID-19 has been controlled through vaccination and/or the Government make an announcement that it is safe for the United Kingdom to come out of the lockdown’.
The press announcement from Ministry of Housing, Communities and Local Government and the Department for Business, Energy & Industrial Strategy in respect of the emergency measures contained a “Notes to Editors”, which provides as follows (emphasis added):
“Under these measures, any winding-up petition that claims that the company is unable to pay its debts must first be reviewed by the court to determine why. The law will not permit petitions to be presented, or winding-up orders made, where the company’s inability to pay is the result of COVID-19….”
However, upon his analysis, Mr Justice Snowden noted that he did not consider either applicant company to be in financial difficulty from the information provided. In fact, the reverse appeared to be true, as both companies were each disputing the underlying liability orders, and SBLT was asserting a cross-claim. In an earlier hearing, the applicant companies put forward in their written submissions that they were not facing liquidity or operational challenges.
Overall, there was a total lack of financial information to support a finding that the companies were unable to pay their debts due to COVID-19, beyond witness statements from the director/trustee of SBLT and her legal representative. The veracity of these statements no doubt had to be carefully weighed, in light of the fact that a general civil restraint order was made against SBLT at an earlier date as a result of their history of ‘meritless and abusive applications’ in an attempt to avoid payment.
The learned Judge also noted the proposed measures were ‘overwhelmingly likely’ to be limited to companies in certain identified sectors of economic activity, and to relate to statutory demands and petitions based upon claims by landlords for arrears of rent. It was held that these extraordinary measures evidently intend to give relief to those facing genuine hardship, such as tenants in the retail or hospitality industry, and could not be taken advantage of by repeat-offenders like the applicant companies who were the subject of ‘outstanding court orders and longstanding arrears… owing under liability orders to local authorities’.
This decision demonstrates that the Government’s emergency measures are not carte blanche for companies to refuse paying their debts. Any Directors or limited companies facing cash-flow issues from COVID-19 must be very careful in communicating their position to creditors when seeking to buy time to make payment.
If you require any advice on your options during this unprecedented crisis, Halcyon Chambers has a dedicated Commercial and Chancery team and is still taking instructions, including for remote hearings. Please contact our clerks for further information.