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Coronavirus - Judicial comment on temporary ban on Statutory Demands and Winding-up Petitions... and opportunism! - UK

  • United Kingdom
  • Banking and finance
  • Coronavirus - Country overview
  • Restructuring and redundancy

04-05-2020

In Re Saint Benedict's Land Trust Ltd; Re Shorts Gardens LLP Harper v Camden London Borough Council and another; Shorts Gardens LLP v Camden London Borough Council [2020] EWHC 1001 (Ch), the court commented that updates made over the weekend to the government announcement of temporary measures to “protect UK high street from aggressive rent collection and closure” are unclear and, when enacted, it is “overwhelmingly likely that the proposed legislation will 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”.

The tenor of the judgment is that the courts will not tolerate opportunism; debtors would do well to bear this in mind and directors should note that the maxim could apply outside the context of statutory demands and winding-up petitions.

Summary

On Saturday 25 April, the government updated their announcement of Thursday 23 April, adding start and end dates for the temporary bans on statutory demands and winding up petitions: it now states that “the government will temporarily ban 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, where a company cannot pay its bills due to coronavirus” (emphasis added).

The government also added the following under the “Notes to editors” section which, arguably and inadvertently, extended the ban to all statutory demands and winding-up petitions (i.e., not just those based on unpaid rent): “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” (emphasis added). 

Fortunately, the court considered the announcement (including amendments) in a decision which was published earlier this week.  After noting that “although the indication in the Government’s press announcement is that the proposed restrictions are intended to apply from next Monday 27 April 2020, no draft legislation has been published”, and that “[t]he scope of the intended restriction and precisely how it will be implemented is unclear”, the Judge continued that:

…it seems overwhelmingly likely that the proposed legislation will 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... Further it seems from the Government’s announcement that some threshold test is envisaged under which the restrictions on use of statutory demands and presentation of petitions will only apply where the reason that the company is unable to pay its debts is due to the coronavirus…

Mr Justice Snowden therefore dismissed the applications before him to restrain the presentations of winding-up petitions on the basis that (amongst other reasons) the applicants’ evidence:

  • just contained sweeping statements about the economic effect of the coronavirus;
  • did not explain how the applicants could not pay the debts as a result of the effects of the coronavirus; and
  • the majority of the debts claimed pre-dated the impact of the coronavirus (and were previously disputed on other grounds)

Ultimately, the court concluded that “the volte face of [the applicants] as to the financial difficulties of [the debtors] is entirely opportunistic and not credible. The reason that [the debtors] have not paid the debts that they owe has nothing to do with the coronavirus, and they are not the sorts of entity owing the type of liabilities which the proposed legislation seems to be intended to protect.  I therefore see no reason to exercise any discretion in favour of the applicants based upon the prospect that legislative measures are to be introduced to assist more deserving companies experiencing genuine financial hardship caused by the effects of the COVID-19 pandemic” and made orders for costs against them on the indemnity basis. 

Conclusion

Until the government gives further guidance and/or enacts the proposed legislation then a reference by debtors to hardship because of coronavirus, unless genuine, could be counterproductive.