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Winding up petitions and COVID-19

Under paragraph 8 of the Insolvency Practice Direction relating to the Corporate Insolvency and Governance Act 2020 (CIGA), a petitioning creditor will need to satisfy the court that it is likely to be able to make a winding up order. This can be done by demonstrating that a debtor company is unable to pay its debts as they fall due, that COVID 19 has not had a financial impact upon the business, or that the debt would have arisen in any event.

Recently, in Re A Company (also known as A v B) [2021] EWHC 2289 (Ch), the High Court dismissed a winding up petition due to the petitioning creditor failing to adduce sufficient evidence to satisfy the above test. In this matter, the court decided that the company was unable to pay its debts due to difficulties it had experienced with workers self-isolating which led to delays in projects being completed and therefore cash flow consequences. It was clear to see that the petition debt was inextricably linked to the ongoing effect of COVID 19.

This is the most recent of a series of cases which demonstrate the impact of COVID 19 on winding up petitions. Whilst many petitions have failed to satisfy the court’s test, our litigation team have been successful in meeting the high burden of proof and have successfully obtained winding up orders against various debtor companies.

With the relevant period now being extended to 30 September 2021 please get in touch with our Senior Associate, Sarah Chambers, if you require any assistance in relation to debts owed to you and the avenues available to you to pursue recovery.

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Authored by Ted Mercer, Partner in Maddox Legal’s Litigation department, with an expertise in telecommunications and technology start-ups. Though there has been the odd case that has helped landlords,