In Doran v County Rentals Limited (t/a Hunters)  EWCA Civ 1376, the Court of Appeal has provided helpful guidance on the “coronavirus test” provided for by Schedule 10 to the Corporate Insolvency and Governance Act 2020 (“CIGA”) and the procedure to be adopted at a preliminary hearing of a winding up petition provided for by paragraph 4.2 of the Practice Direction – Winding Up Petitions and the Corporate Insolvency and Governance Act 2020 (“the PD”).
By Sch.10 CIGA, certain temporary restrictions applied to winding up petitions presented between 27 April 2020 and 30 September 2021 which were intended to protect economically viable businesses experiencing trading difficulties as a result of the COVID-19 pandemic. In particular:
In light of these restrictions, the PD provided that where a petition was opposed, it should be listed for a preliminary hearing in order for the court to determine whether it was likely that it would be able to make a winding up order having regard to the coronavirus test.
There has been some confusion as to whether the court could and/or should consider an alleged substantial dispute of the petition at a preliminary hearing. In the court below, HHJ Cadwallader (sitting as a High Court Judge) held that at a preliminary hearing, the court must assume that the ground in s.123 applies (rather than determining whether it is likely to apply or not) and consider whether (on the assumption that it does apply) it would have applied even without the effect of coronavirus (Doran v County Rentals Limited (t/a Hunters)  EWHC 3478 (Ch);  BCC 572 at ). This was contrary to the view expressed by Simon Passfield (sitting as a Deputy ICC Judge) in PGH Investments Ltd v Ewing  EWHC 533 (Ch);  BCC 659 at  that the court will necessarily have to consider any alleged dispute of the petition debt at the preliminary hearing in order to determine whether it is likely that it will be able to make a winding up order.
In the Court of Appeal, Asplin LJ (with whom Thirlwall and Birss LJJ agreed) confirmed that at a preliminary hearing, the court must be satisfied that it is likely that the substantive ground will be made out and that that ground would have been made out even if coronavirus had not had a financial effect on the Company (disapproving the approach of HHJ Cadwallader in the court below and tacitly approving the approach set out by Simon Passfield in PGH).
On the facts, the Court held that the courts below had been correct to hold that the petitioners had failed to discharge the burden of demonstrating that the coronavirus test was satisfied in circumstances where they relied solely on the fact that the alleged petition debt had fallen due prior to the pandemic but did not dispute the company’s evidence that it had been paying the monies into a different bank account in the mistaken belief that it was thereby discharging its indebtedness to them.
Simon Passfield acted successfully for the Respondents at first instance, and on appeal to HHJ Cadwallader and the Court of Appeal.
A copy of the judgment is available here:
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