The petitioners in winding up proceedings were the owners of a number of properties which were let out. The respondent company was an estate agent entrusted with managing the properties, gathering rent and transferring the rent to the petitioners. The petitioners became aware after several years that a substantial sum had not been paid over. The company asserted that, on instructions, it had paid the sums due to a nominated bank account, but the petitioners denied knowledge of any such instructions and of the bank account referred to. The petitioners issued a petition seeking the winding up of the company, founded on the claimed debt. The district judge dismissed the application on the ground that it was not likely that a substantive order would be made under section 122(1)(f) of the Insolvency Act 1986 having regard to the “coronavirus test”, as set out in the Corporate Insolvency and Governance Act 2020. On the petitioners’ further appeal they contended (i) that the judge had been wrong in fact and law to decide that the fact that the alleged debt had accrued before the pandemic was not evidence that the company was unable to pay its debts as they fell due before the pandemic, and for the purposes of the preliminary hearing, the petitioners’ case should have been taken at its highest, so that it should have been assumed that no instructions to pay monies to the account had been given; (ii) that the judge had been wrong to characterise the district judge’s finding that the company’s pre-pandemic payment of rental monies into the identified account was evidence that it was “not unable to pay its debts as they fell due up until the commencement of the coronavirus pandemic”; and (iii) that the judge erred in holding that the supposed failure to pay when the sums fell due did not go to the question of inability to pay because the company was not told until a much later date that the monies were going into the wrong account.
On the appeal—
Held, appeal dismissed. Practice Direction (Chancery Division: Corporate Insolvency and Governance Act 2020: Covid-19: Insolvency) [2020] Bus LR 1847, was concerned with the procedure to be adopted in relation to winding-up petitions in consequence of the coronavirus pandemic, and came into force on the same day as the Corporate Insolvency and Governance Act 2020. In the present case, it was accepted that the coronavirus pandemic had had an effect on the company, and that in those circumstances, the onus was upon the petitioners to satisfy the court that the company was unable to pay its debts as they fell due even if coronavirus had not had a financial effect upon it (paragraph 5(3) of Schedule 10 to the Act). The petitioners had sought to do so by reference to the non-payment of the rents due to them over the period since 2014, albeit that it was claimed that those monies had been paid into the identified account on instruction, they had not been demanded before the pandemic and if no instruction had been given, the natural inference was that they had been paid into the account by mistake. The petitioners contended that at the preliminary hearing the court should have taken their case at its highest and assumed that a debt arose and that there had been no instructions to pay monies into the identified account; and that the court was concerned only with whether the ground would apply even if coronavirus had not had an effect on the company, the focus being on the effect of the virus on the company, so that the court should not consider the substantive ground at all, leaving that matter to a final hearing. However, that was not the correct approach: the court was required to consider whether the company was unable to pay its debts as they fell due. There was no room for the assumption to that effect which the petitioners would like the court to make. Nor was there any reason why the court should take the petitioners’ case at its highest for the purposes of the preliminary hearing. The ordinary and natural meaning of the words in paragraph 5 of Schedule 10 to the Act could not bear the weight of such a construction. Nor did the Practice Direction require a different approach. At the preliminary hearing, therefore, the court was required to consider whether it was likely to be able to make a winding-up order having regard to the coronavirus test on the basis that the alleged debt which had arisen before the pandemic was evidence that the company was also unable to pay its debts as they fell due before the pandemic. In doing so, the court was not required to make any assumptions. The judge correctly concluded that the petitioners had not discharged the burden upon them and the coronavirus test was not satisfied, and further that there was ample reason for the district judge to conclude that the court was not likely to be able to make a winding-up order because the court would not be likely to be satisfied that the company would have been unable to pay its debts as they fell due even if coronavirus had not had a financial effect on it (paras 21, 27, 30, 31, 33, 38, 40–41, 47, 50, 51, 52, 53).
Arnold Ayoo (instructed by Athena Solicitors LLP) for the petitioners.
Simon Passfield (instructed by DAC Beachcroft LLP) for the respondent company.