Here discussed are two recent cases which consider what is called the coronavirus test, applied to winding up petitions.
Firstly, what is the coronavirus test?
On June 26 2020, the Corporate Insolvency and Governance Act came into force. Included in the CIGA was the temporary halt of issuing winding up petitions, unless the coronavirus test was met. The act also prohibited winding up petitions presented after the 27 April 2020, based on statutory demands. The prohibitions are in place until the end of June (30th) 2021.
The coronavirus test requires the court to investigate if coronavirus had a financial effect on the company and so if coronavirus were to not apply and there was no financial effect, would a winding up petition still proceed?
The coronavirus test in practise
In the case of Newman v Templar Corp Ltd  EWHC 3740 (Ch), the judge took the view that the low threshold test for determining if coronavirus had impacted on the financial position of the company, was to be taken as settled law. Exploring the case further, a winding petition was filed for unpaid wages, but the company argued the reason for unpaid wages was that investment was being sought before wages could be paid, but travel restrictions due to the pandemic prevented the investor from signing the investment agreement. There was lack of evidence supporting the case here and so the winding up petition was issued, as the financial effect of coronavirus on the company was not satisfied.
In the case of Re PGH Investments Ltd v Ewing  EWHC 533 (Ch), the judge offered helpful insight to what ‘financial effect’ meant. The outcome was that the debtor was not liable to pay the alleged debt, due to consideration of the test. An indirect financial effect was found that the debtor company could not fulfil obligations of its agreement due to travel and social restrictions in place from the pandemic, making them liable for paying the alleged debt. However, it was discovered that the debtor company would not have overcome the coronavirus test due to lack of sufficient evidence of the financial effect on the business. As reinstated by the Court, evidence is needed of the financial effect coronavirus has on the company, just asserting the affect is not enough.
From the above case, the judge went on to state that the term ‘financial effect’, within the test, is wide and is therefore sufficient enough for a company to demonstrate that its financial position worsened in consequence of or for reasons relating to coronavirus.
It is useful, from exploring both cases, to see that for companies which face a winding up petition and are suffering financially, the court will take into account both direct and indirect financial effect when assessing if the test is met. However, strong evidence is needed to paint the real picture of the effect.
Categories: Winding up petition