Although the contentious background to the applications to restrain the presentation of two winding up petitions heard together in (but only listed singularly as) the case of Shorts Gardens LLB v London Borough of Camden Council [2020] EWHC 1001 (Ch) is somewhat unusual, these cases nonetheless raise some interesting points of principle which may be used by the courts in determining whether it is appropriate to restrain or dismiss a winding up petition due to COVID-19.

As businesses and companies in the UK face an uncertain few weeks and months with unprecedented pressures, it can be easy for directors to panic and not know where to turn.

To assist in decision-making, we give a reminder of the law in this area, and some signposts for those seeking help.

In this briefing, we give a short reminder of statutory duties owed by UK directors under the Companies Act 2006, the potential risks of continuing to trade while possibly insolvent, and actions that should be taken in order to mitigate those risks.

Directors’ duties

Hot on the heels of our April 2020 article on the proposed reintroduction of the Crown preference, Parliament has recently approved legislation that will increase the ring-fenced amount available to unsecured creditors on an insolvency of a company from £600,000 to £800,000.

In our last article, which can be found here, we reported on the government’s intention to give HMRC priority in the recovery of certain debts (including VAT, PAYE, Employee NICs, and Construction Industry Scheme deductions ) in insolvency proceedings.

In the landmark decision in Re Systems Building Services Group Limited [2020] EWHC 54 (Ch), ICC Judge Barber held that the duties of a director survive the insolvency of a company.

In February 2016, Energy Future Holdings Corp. (“EF”), which obtained confirmation of a chapter 11 plan on December 3, 2015, prevailed at the district court level in related appeals brought by first- and second-lien noteholders of bankruptcy court orders disallowing the noteholders’ claims for make-whole premiums allegedly due under their note indentures. The forum in this hotly contested and long-running dispute has now moved to the Third Circuit Court of Appeals.

Enforceability of Make-Whole Premiums in Bankruptcy

In Del. Trust Co. v. Energy Future Intermediate Holding Co. LLC (In re Energy Future Holdings Corp.), 527 B.R. 178 (Bankr. D. Del. 2015), the bankruptcy court ruled that, even though a chapter 11 debtor repaid certain bonds prior to maturity, a "make-whole" premium was not payable under the plain terms of the bond indenture because automatic acceleration of the debt triggered by the debtor's chapter 11 filing was not a "voluntary" repayment.

Whether a provision in a bond indenture or loan agreement obligating a borrower to pay a “make-whole” premium is enforceable in bankruptcy has been the subject of heated debate in recent years. A Delaware bankruptcy court recently weighed in on the issue in Del. Trust Co. v. Energy Future Intermediate Holding Co. LLC (In re Energy Future Holdings Corp.), 527 B.R. 178 (Bankr. D. Del. 2015).

The mainstream media have been trying to predict, on almost a daily basis, the causes of, and the winners and losers (mostly focused on the latter category) resulting from, the current volatility in oil and gas prices.