Presentation of petitions to remain private - further protection for debtor companies affected by COVID-19

Alongside the Corporate Insolvency & Governance Act 2000 ("CIGA") coming into force (read more here), the associated Insolvency Practice Direction was released.

The new practice direction provides for additional protections for companies who face a winding up petition presented as a result of coronavirus-related financial difficulties.

It was several months ago that the court started putting into effect the government's plans to prevent a winding up order being made against a company where its financial difficulties were caused by coronavirus (the "Coronavirus Test") (see examples here).  The CIGA is now in force and the provision preventing the making of a winding up order applies (at the moment) until 30 September 2020.

However, whilst the court were willing to refuse to grant a winding up order where the company's difficulties arose from the effects of coronavirus, there was nothing to stop a creditor from presenting the petition in the first place.  Even the presentation of a winding up petition can be enough to put the final nail in the coffin of an already suffering company, even if the court then goes on to refuse to make the winding up order.  Once presented, the existence of the petition could be ascertained by anyone searching the public register and, unless the company was quick to apply for an injunction preventing the advertisement of the petition, the company would very shortly see their bank freeze their accounts - further damaging the company's finances. 

The new insolvency practice direction seeks to address this loophole.  The practice direction provides that when a petition is presented to court its existence will remain private until the court has had the opportunity to determine the outcome of the Coronavirus Test.  Importantly, the petition will not appear on any public search of the register until that point has been determined.

The petition must still be served on the company but it will be initially listed for a non-attendance pre-trial review at least 28 days after presentation. The purpose of the pre-trial review  is to enable the court to consider the petition and, if appropriate, list the matter for a preliminary hearing to consider the Coronavirus Test.  Prior to any preliminary hearing, both parties will have the opportunity to file evidence and they will be entitled to appear at the hearing to make representations.

Depending on the outcome of the pre-trial review and preliminary hearing, the court will either dismiss the petition or allow it to proceed to be listed in the winding up petitions list (and appear on public searches and be advertised in the London Gazette accordingly).

This is an important development for debtor companies - although they previously had protection from the making of the winding up order, they could not guarantee that a particularly aggressive creditor wouldn't take their chances with the court and present the petition anyway - causing irreparable damage to the company's reputation and finances.