Covid-19 clause in new insolvency bill saves retailer from being wound up in test case

Judge takes into account new insolvency law in test case saving retailer from petition to be wound up 

An anonymous retailer has been saved from liquidation after a judge granted an interim injunction when the anonymous retailer’s landlord presented a winding up petition to the court.

With one eye on the Corporate Insolvency and Governance Bill 2020 (CIG Bill) that is yet to be passed in parliament a judge has in effect set a precedent for struggling businesses threatened by their landlords of being wound up with a petition by citing section 82 of the Coronavirus Act 2020.

Exchange Chambers reported that: “The ex-parte hearing in Re: A Company (Injunction to restrain presentation of petition) [2020] EWHC 1406 (Ch), took place, in private, on 1 June 2020 before Mr Justice Morgan. Judgment was, unusually, handed down in open Court on 2 June 2020 because of the likelihood that the issues raised in the case will present themselves in other cases in the near future.”

The case has given struggling firms a glimmer of light. Retailers, hotels, cafes, pubs, theatres, cinemas, night clubs, printing firms and manufacturers of all types have been hit hard by the Covid-19 shut down. In the test case the Judge gave his reasons for refusing the petition on a number of grounds but the main one being the provision in the Coronavirus Act 2020.


Ian Carrotte of ICSM Credit said: “Every month scores of petitions are presented to courts by creditors to wind up a firm that has failed to pay their bills. It is seen as the nuclear option by many – forcing an indebt company to cease trading and be liquidated. During the Covid-19 crisis there are so many firms in trouble as business has fallen off a cliff so this judgement shows the bill gives some cover although it only covers to the end of June.”

In normal times the directors of the struggling company would either call it a day as the firm is insolvent or negotiate with the petitioner and other creditors and seek a CVA. The judge in the anonymous case decided in private on June 2 also refers to the CIG Bill which is yet to complete its passage through parliament.

Travelodge case

Writing for the Exchange Chambers website Jodie Chambers noted: “Fundamentally, the Judge decided that as a matter of law, he was able to take account of the likelihood that the CIGB would invoke a change in the law which would be relevant to his decision in this case. In arriving at that decision, the Judge was keen to point out that “essentially the same conclusion” had been reached in Travelodge Ltd v Prime Aesthetics Ltd [2020] EWHC 1217 (Ch) but that had been based on ministerial statements, as the CIGB had not, at the time of the hearing in that case, been published.”

Ian Carrotte said: “This provides a glimmer of hope for many businesses who will gain some protection from landlords in particular who cannot seem to accept the impact of the Covid-19 crisis on their tenants.”

Chapter 11

He said that in the anonymous retailer case the judge indicated that post June when the protection ends the new law could be seen as an equivalent to Chapter 11 protection in the USA where the directors of an insolvent firm retain control and can restructure the business so as to trade their way out of trouble.

“That happened when Kodak went bust,” Ian Carrote said, “and that would have an impact on pre-packs which have been controversial to say the least. Hopefully the new CIG Bill will give clarity in the world of company insolvency.”

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