Petition dismissed under Covid rules

Published on
2 min read

A property development company debtor borrowed money from the creditor. The loan became due at the end of March 2020, was demanded at the end of June 2020 and a winding up petition presented in November 2020.

At the time of presentation, paragraph 5 of schedule 10 to CIGA 2020 (the Paragraph) applied if “it appears to the court that coronavirus had a financial effect on the company before the presentation of the petition” and, if the Paragraph did apply, the court should only make a winding up order on the ground of insolvency if it “is satisfied that the ground would apply even if coronavirus had not had a financial effect on the company…’.

It was agreed that the debtor had to establish that the Paragraph applied and, if it did, then it was for the creditor to show, on a balance of probabilities, that the debtor was insolvent regardless of the financial effect of Covid.

The debtor argued that, if it were not for Covid, it would have sold the properties it was developing, and/or the directors would have sold properties in India, and/or the company would have refinanced, enabling it to repay the loan in full. The creditor disputed these contentions, but provided no evidence to counter them.

The ICCJ held, on the facts, that the Paragraph did apply and went on to hold that the creditor had failed to establish that the debtor would have been insolvent, regardless of the financial effect of the pandemic, finding that the relevant date when that issue was to be determined was the date the loan was demanded, not when it fell due.

Re A Company [2021] EWHC 2905 (Ch)

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