Winding up petition fails the ‘Coronavirus Test’

The petitioning creditor (Petitioner) appointed an estate agent (Debtor) as managing agents for the Petitioner’s leased properties. The Debtor collected rent from the Petitioner’s tenants. The Debtor failed to pay on all of the collected rent to the Petitioner who consequently presented a winding-up petition on the basis that the Debtor could not pay their debts (Petition).

The Petition was presented during the coronavirus pandemic. The Corporate Insolvency and Governance Act 2020 (Act) was introduced in response to the pandemic. Schedule 10 of the Act imposed restrictions on winding-up petitions. Paragraphs 5(2) and (3) of Schedule 10 (repealed on 30 September 2021 but applicable when the Petition was presented) set out the so-called ‘Coronavirus Test’. The test required the court to be satisfied that the grounds for winding up the Debtor (here, the inability to pay its debts) would have existed even if the coronavirus pandemic had not financially impacted the Debtor. 

The court was not satisfied that the test was passed and dismissed the Petition. The decision was upheld on appeal. The judge on appeal considered that the coronavirus test was only focused on whether the pandemic had caused the Debtor to become insolvent, not on the effect of the pandemic on the Petition debt. It was insufficient that the Petition debt fell due before the pandemic started as the issue was the financial impact that the pandemic had had on the Debtor.  

Doran v County Rentals Ltd (t/a Hunters) [2021] EWHC 3372 (Ch)

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