020 8308 3610 contact us

We recently reported that the current restrictions on the presentation of winding up petitions and the making of winding up orders introduced by Corporate Insolvency and Governance Act 2020 (“CIGA 2020”) have been extended to 31 March 2021.

By way of reminder, CIGA 2020 came into force as a result of the COVID-19 pandemic last year with various measures to protect companies. This included prohibiting winding up petitions from being presented unless a creditor could show that (i) COVID-19 had no financial effect on the company or (ii) the relevant grounds would have arisen even if COVID-19 had not had a financial effect on the company.

It was not clear how the courts might deal with such matters and the nature of the evidence required. In a recent case of PGH Investments Ltd v Ewing [2021] this has now been considered and the full judgment is available here.

In this case, it was the respondent company’s position that COVID-19 did have an effect on its financial status before the presentation of the petition and thus the winding up order should not be made against it.

It was clarified that where the company can show a prima facie case (that is to say, on the face of it) it had been adversely affected by COVID-19, then the burden switches to the petitioner to show that even if the financial effect of the pandemic is ignored by the Court, the company would still be insolvent and unable to pay its debts as they fall due (paragraph 29 of the judgment).

In this particular case, it was ultimately held that the company was not in fact liable to pay the debt in any event and so the petition was dismissed. Nevertheless, the Court went on to consider the “coronavirus test” and restated that the threshold for the company to establish that its financial position had been effected by Coronavirus was a low one and could include an ‘indirect effect’.

The judge commented that she might have been persuaded here to allow an ‘indirect effect’. In this case, the proposed buyer of the shares in question (which were guaranteed by the company), had stated that he had been unable to find a new buyer for the petitioner’s shares owing to restricted travel for business purposes both domestic and international, which prevented networking opportunities. The proposed buyer stated that as a result of this and pursuant to the company being the guarantor, it left the company with the alleged liability to pay and placed the company into a worse financial position had the pandemic not happened. Whilst a potential indirect effect could be accepted, in this particular case, the company had failed to produce any adequate evidence to support these assertions. Only one email was adduced and this did not raise any issues at the time.

This highlights the importance of being able to adduce sufficient evidence to support the statements being made as, had the company been found liable to pay the debt, it may not have been able to defend against a winding up order owing to the lack of evidence to support the ‘indirect effect’ of the pandemic on its financial position.

If you would like to discuss the PGH Investments Ltd v Ewing [2021] judgment further or for further information on a particular bankruptcy-related matter, please contact Adina-Leigh Collins or Bimal Kotecha.