Court prevents landlord from presenting winding up petition for unpaid rent on basis of impending legislation
This ex-parte, anonymised judgment will bring comfort for businesses, particularly those tenants in the retail and hospitality sector facing significant strain as a result of the forced closure of premises in line with the Government's coronavirus lockdown measures.
Re: A Company (Injunction to restrain presentation of petition)  EWHC 1406 (Ch)
However, it is a further blow to some landlords who, following the moratorium against forfeiture imposed by the Coronavirus Act 2020 in March, find themselves further curtailed in their ability to seek recovery of unpaid rent from a minority of tenants who could pay at least some rent but to date have not done so.
This case involved a high street retail tenant forced to suspend trading in March 2020 as a result of the coronavirus pandemic. It sought an urgent injunction to prevent its landlord presenting a winding up petition in respect of unpaid rent and service charges. The evidence before the court suggested that there was a strong case that coronavirus had had a financial effect on the tenant before the presentation of the winding-up petition.
The court granted the injunction. This decision is significant; not least because in granting the injunction the court took account of the policy behind and the anticipated final form of draft legislation that has not yet become law. The Corporate Insolvency and Governance Bill 2020 (the CIGB) is currently making its way through the Parliament, having been introduced on 20 May 2020. The court's rationale for the decision was as follows:
- Ministerial statements indicated that Schedule 10 of the CIGB (imposing temporary restrictions on winding up petitions and statutory demands) would be enacted into law in more or less its current form. Its proposed effect is clear, and its policy objectives self-evident;
- If presented, it was unlikely that the hearing of the winding-up petition would take place before the CIGB is enacted (currently expected to be late June/early of July). This would mean that at that hearing, the court would need to consider the provisions of the CIGB and whether the coronavirus had had a 'financial effect' on the company prior to the presentation of the petition;
- If the court found that coronavirus had indeed had a 'financial effect' on the company, it could only make the winding up order if it was satisfied that the petition would have been presented even if coronavirus had not had a financial effect on the company;
- The evidence before the court met the criteria above and therefore a presentation of a winding-up petition would ultimately fail and its presentation would nonetheless have a serious damaging effect on the tenant; and
- The court, as a matter of law was able to take account of the possible change in the law that would result from the CIGB, and referred to the recent approach taken in Travelodge Ltd v Prime Aesthetics Ltd  EWHC 1217 (Ch).
The impending CIGB in its current form will temporarily impose a blanket ban on statutory demands being used as a mechanism to present a winding-up petition. This applies to statutory demands served on or after 1 March 2020 and will prevent winding up petitions being presented on or after 27 April 2020 unless the creditor has reasonable grounds for believing that either coronavirus has not had a financial effect on the debtor or the debtor would have been unable to pay its debts even if coronavirus had had a financial effect on the debtor. These temporary measures will be retrospective in effect and will remain in place for one month after the bill becomes law.
Landlords and tenants now need to work together to ensure that the burden of this pandemic is shared and that both sides can look to recovery for their mutual benefit. The recently announced Government Code of Practice for commercial landlords and tenants is expected later this week and it is hoped that this will be the catalyst needed to unlock the impasse some landlords and tenants are experiencing. However, how much impact this temporary, non-mandatory code will have remains to be seen.