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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Doran & Anor v County Rentals Ltd (t/a Hunters) [2021] EWHC 3478 (Ch) (20 December 2021) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2021/3478.html Cite as: [2021] EWHC 3478 (Ch) |
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BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
B e f o r e :
sitting as a Judge of the High Court
BETWEEN:-
____________________
ANNETTE DORAN and JAMES DONALD DORAN |
Appellants |
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-and- |
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COUNTY RENTALS LIMITED t/a HUNTERS |
Respondent |
____________________
____________________
Crown Copyright ©
Winding up - 'Coronavirus test' – relationship between CIGA Practice Direction and statute - attended preliminary hearing – strike out
PGH Investments Ltd v Ewing [2021] EWHC 533 (Ch)
Re a Company [2021] EWHC 2289
Taylors Industrial Flooring Limited v M and H Plant Hire (Manchester) Limited [1990] BCLC 216.
Re Easy Letting & Leasing [2008] EWHC 3175 (Ch)
Re A Company (No. 006798 of 1995) [1996] 1 WLR 491
Re a Company (Application to Restrain Advertisement) [2020] EWHC 1551 (Ch)
Judge Cadwallader:
Introduction
Background
The petition
"Pursuant to Schedule 10 to the Corporate Insolvency and Governance Act 2020 the company is insolvent and unable to pay its debts and the petitioner has reasonable grounds for believing that coronavirus has either, not had a financial effect on the company; or had a financial effect on the company but the company would still have been insolvent and unable to pay its debts in any event.
"The grounds relied upon by the petitioning creditor for the purposes of the coronavirus test are as follows:
"The Petitioners are the freehold owners of 10 and 10a Rowson Street, Wallasey CH45 5AT ((registered at HM Land Registry with title no. MS181985) and, they were freeholder owners of 116 and 116a Mill Lane, Wallasey CH44 3BL between October 2002 and February 2020 (both registered at HM Land Registry with title no. MS277433) ("the Properties"). In early 2014 the Petitioners appointed the Company as the managing agents of the Properties who dealt with, among other things, the collection of rents. The Petitioners only recently found that the Company has failed to amount to them for the rents needed.
"A demand for payment was sent to the Company on 27th August 2020, the demand required the Company to pay the sum of £65,442.55 being the amount the Petitioners believe has not been amounted [sic] for in respect as rents needed by the Company. The Company failed to pay the said sum or to secure or compound to the Petitioner's satisfaction for the same or any part thereof.
"The company is accordingly unable to pay its debts as they fall due."
Procedural history
The decision of the District Judge
"There is a strangeness to this Petition. The Petitioner has not queried any missing payments for 6 years. Had you asked Company in, for example, 2019, whether they had been discharging their obligations, they would have said 'of course'.
"For today's argument, the Respondent suggests that I should grasp the nettle and strike out the Petition because it is a debt which is disputed on substantial grounds.
"Parameters of the hearing
"I take note of what Mr Passfield says. Unless this was a no-hope Petition, I think it would not be appropriate to use this forum for me to dispose of this Petition on the merits. The evidence has not been directed as fully towards that question as it might have been. Of course, questions would have to be answered if we are at a final hearing of a winding up petition: where did the Barclays authority come from, why did the Petitioners not pursue the question earlier? Whilst I can see the questions, I'm not satisfied I have the answers. I am not minded to accede to his request on that front. It would have to be much clearer.
"Coronavirus test
"This is an unusual factual situation. It is not a usual trading situation where a debt for goods/services has been incurred and invoices have been rendered. A fundamental and important differing factor, is that the Company was paying these debts as they went along, which is evidence of their solvency at the time.
"Why was it only in March 2020 that the [Petitioner's non-receipt of the money] was raised with the Company? There is precious little evidence from the Petitioner on that.
"The fact that the Company seems to have been paying rents into the Barclays account suggests they were able to pay debts as they fell due up to and including the commencement of the coronavirus pandemic. I ask myself the question, would they be unable to pay their debts without the covid pandemic? There is no evidence that is the case. Before the pandemic they were paying their debts - albeit paying into the Barclays Bank account.
"I should not allow the Petition to go any further. It does turn on this very unusual set of facts. However monies were being paid. On that basis I will dismiss the Petition."
The appeal and respondent's notice
"1. The Learned Judge considered the Company's pre-pandemic payment of rental monies to 'a Barclays account' (which did not belong to the Petitioners) to be evidence of 'payment of its debts' and/or 'payment of its debts as they fell due'. This was wrong in law and/or in fact as payments out to an account which did not belong to the Petitioners could not discharge the contractual obligation to the pay the Petitioners.
2. The Learned Judge considered that the Company's pre-pandemic payment of rental monies to 'a Barclays account' was evidence of pre-pandemic solvency. This was wrong in law and/or in fact as (i) the mere fact of a transfer of money from one account to another is not necessarily representative of an ability to discharge specific debts owed to a creditor and (ii) there was no indication that the Barclays-received money could necessarily be recovered (whether immediately or at all) for the purpose of discharging the sums due to the Petitioners.
3. The Learned Judge held that the Company could not be said to have been 'unable to pay its debts as they fell due' if it did not subjectively know the debts were due. This was wrong in law because the monies were due, owing and unpaid in an objective sense and 'inability to pay' should follow.
4. The Learned Judge was wrong in law in his interpretation of s.123(e) Insolvency Act 1986; he conflated 'unable to pay its debts as they fell due' with 'unable to pay its debts when demanded'. The fact that the sums were not formally demanded until March 2020 does not mean that they did not fall due before this. The sums fell due pre-pandemic (irrespective of coronavirus), not in March 2020.
5. In the circumstances the Learned Judge erred in his application of the coronavirus test. He erred in holding that the 'financial effect of coronavirus' could prevent a determination of insolvency where coronavirus had nothing to do with the indebtedness. In doing so the Learned Judge was wrong in law and/or in applying it to the facts."
The law
Insolvency Act 1986
CIGA para.2 Sch. 10
CIGA para 5 Sch.10
Para 19 Sch.10
Practice Direction – Winding up Petitions and the Corporate Insolvency and Governance Act 2020
"4.1 Upon presentation of a winding up petition, provided it is not rejected
for fiing under paragraph 2 above, the petition shall be listed for a non-
attendance pre-trial review with a time estimate of 15 minutes for the fist
available date after 28 days from the date of its presentation.
"4.2 The purpose of the non-attendance pre-trial review is to enable the
court to give directions for a preliminary hearing in order for the court
to determine whether it is likely that it will be able to make an order
under section 122(1)(f) … of the 1986 Act having regard to the
coronavirus test."
The words 'having regard to the coronavirus test' do not appear in the legislation.
"8.1 At the preliminary hearing:
(1) if the court is not satified that it is likely that it will be able to make an order under section 122(1)(f) or 221(5)(b) of the 1986 Act having regard to the coronavirus test, it shall dismiss the petition; or
(2) if the court is satified on the evidence before it that it is likely that it will be able to make an order under section 122(1)(f) or 221(5)(b) of the 1986 Act having regard to the coronavirus test it shall list the petition for a hearing in the winding up list."
"Moreover, as the court will necessarily have to consider any alleged dispute with the petition debt at the preliminary hearing listed in accordance with the CIGA PD in order to determine whether it is likely that it will be able to make an order under s.122(1)(f) of the 1986 Act, a company may simply wait until that hearing to determine the issue."
However, the question appears not to have been fully argued, and the Court turned to consider the merits. The case was referred to with approval in re a Company [2021] EWHC 2289, but this point was not considered. I therefore regard myself as at liberty to form my own view and respectfully to come to a different conclusion. I do not regard it as the case that the Court would necessarily have to consider any alleged dispute with the petition debt at the preliminary hearing the reasons I have already given.
The grounds of appeal
The respondent's notice