COVID-19 in the UK – English courts extend the protection of companies from their creditors

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Re PGH Investments Ltd v Ewing [2021] EWHC 533 (Ch)

As we reported last month, the UK government has extended the restriction on winding up petitions until 30 June 2021. In a recent decision, English courts have observed that they would protect companies from their creditors even further than previously thought, by dismissing a winding up petition when the company argued that COVID-19 had had an indirect financial effect on it.

In this case, coronavirus had prevented the principal debtor from complying with its obligations and this had caused the company's alleged liability to arise (under a guarantee). The company did not, however, produce any documentary evidence to support its assertions.

Key points from the court's decision

The court accepted that it would be sufficient for the company to demonstrate that coronavirus had an "indirect financial effect" of this type and noted that the definition of “financial effect' in the relevant legislation is a wide one and it is sufficient for a company to demonstrate that its financial position worsened either "in consequence of" or "for reasons relating to" coronavirus.
The company nevertheless had to present enough documentary evidence of the financial effect. Even though the threshold for the test is low, the court found that the company would have failed to support its assertions that coronavirus had had a financial effect on it.