New Insolvency Practice Direction and Winding-up Petitions

The Lord Chancellor, the Right Honourable Robert Buckland MP, Secretary of State for Justice, has approved and signed a new Insolvency Practice Direction (“IPD”), which came into force on 3 July 2020, and an amendment to the Insolvency Proceedings Practice Direction 2018.

The IPD and amendment to the Insolvency Proceedings Practice Direction 2018 primarily deal with a range of measures for insolvency practice under the new Corporate Insolvency and Governance Act 2020 (“CIGA”) and are in response to the immediate Covid-19 emergency.

Winding up petitions

The landscape relating to winding-up petitions has changed due to COVID-19 pandemic. CIGA restricts creditors from presenting winding up petitions unless they reasonably believe that COVID-19 has not had a financial effect on the debtor company or that the debt issues would have arisen anyway - the so called new ‘coronavirus test’.

The IPD and amendment to the Insolvency Proceedings Practice Direction 2018 set out some important changes to the court procedure for winding-up petitions - effective from 6 April 2020 until 1 October 2020, unless amended or revoked by a further insolvency practice direction in the meantime.

The New Insolvency Practice Direction introduces new requirements for winding-up petitions as set out below:

1. Contents of the winding-up petition

A petition will not be accepted for filing unless it contains the statement required by Rule 7.5(1) - as amended by paragraph 19(3) of Schedule 10 to the CIGA. The ‘coronavirus test’ requires the petitioner to confirm it has reasonable grounds to believe that either:
• the pandemic has not had a financial effect on the company; or
• that the relevant ground for winding-up would apply even if the pandemic had not had any financial effect on the company.
In addition, the petition must contain a summary of the grounds relied upon by the petitioning creditor for the purposes of the coronavirus test.

2. Initial listing of the petition

Provided winding-up petition is not rejected for failing to include the relevant contents (above), the petition shall be listed for a non-attendance pre-trial review, with a time estimate of 15 minutes, for the first available date after 28 days from the date of its presentation. At the trial the court will give directions for a preliminary hearing in order for the court to determine whether it is likely that the ‘coronavirus test’ will be satisfied.

3. Petition to remain private

Until the court has concluded that the ‘coronavirus test’ is likely to be satisfied, winding-up petitions will remain private, except for being served on the company and limited other parties (as set out in Rule 7.9 of the Insolvency Rules, including any liquidator or administrator).

Accordingly, unless the court otherwise orders:
• the petition (whether filed electronically or otherwise) shall be marked private and will not be available for inspection; and
• neither the petition nor the fact of its presentation shall be revealed in response to a search by a member of the public of any court file or other record.

4. Filing of evidence

If the petitioner wishes to rely upon any further evidence at the preliminary hearing, other than that contained in the petition, it must file and serve on the company a witness statement with supporting evidence at the same time as the petition.

The company must file and serve on the petitioner a witness statement containing its supporting evidence within 14 days of service of the petition upon it.

At least two days before the non-attendance pre-trial review the parties shall file and serve a listing certificate stating:
• the identity of their legal representatives (if any);
• their availability for the preliminary hearing; and
• a time estimate for the preliminary hearing.

5. The non-attendance pre-trial review

At the non-attendance pre-trial review the court may either list the petition for a hearing in the winding-up list or list the preliminary hearing and give such other directions in relation to the preliminary hearing as it thinks appropriate.

6. The preliminary hearing

At the preliminary hearing court will either dismiss the petition or will list the petition for a hearing in the winding-up list. The court will list a final hearing of the petition within such time period as allows for notice of the petition to be given.

If, at any time after the court has determined that it is likely that it will be able to make an order on the Petition having regard to the ‘coronavirus test’, and it appears that the same or different court has also made such a determination in respect of another petition concerning the same company, the court shall direct that both petitions shall be listed for further hearing at the same time. In such a circumstance the court shall:
• where required, transfer the petition to the court dealing with the petition presented first in time; and
• direct that the petition presented first in time should be heard first.

Conclusion – A new battleground?

It remains to be seen how the Courts will deal with the practicalities of the new ‘coronavirus test’. However, it looks likely that it will be a significant hurdle for petitioning creditors.

Petitioning creditors will rarely have detailed information about debtor companies, and even meeting the threshold test (that COVID-19 has not had a financial effect on the debtor company or that the debt issues would have arisen anyway) is likely to be difficult in many cases. The difficulties for petitioning creditors are likely to be even more acute where companies put in evidence to argue that the threshold test has not been met. Deciding these evidential issues may also prove challenging for the Courts.