PGH Investments Ltd v Ewing

• Published date: 28 May 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Coronavirus (COVID-19), Corporate and Company Law, Insolvency/Bankruptcy, Trials & Appeals & Compensation, Financing
• Law Firm: Moon Beever
• Author: Mr James Latham

PGH Investments Ltd v Ewing [2021] EWHC 533 (Ch) adds to the emerging authorities on the coronavirus test in compulsory winding up, but it deals with other issues as well.

The application before Deputy ICC Judge Passfield was for the dismissal of a winding up petition presented by Sean Ewing, alternatively for an order restraining advertisement of the petition. Mr Ewing claimed that the company owed him '825,000 under the terms of a share purchase and loan assignment agreement made between and among him (as seller), a Mr Neate (as buyer) and the company (as guarantor). Much of the deputy judge's judgment is concerned with matters of construction and is of little interest to anyone but the parties. Suffice it to note that he found, as a matter of construction, that the agreement had terminated automatically, so Mr Neate's obligation to purchase had ceased; and in spite of there being a clause in the agreement providing that the guarantee remained in force even on termination, that the company could not be held liable so that the petition should be dismissed.

Although in those circumstances he found that he did not need to deal with the coronavirus test he did so, making three points of interest:

(1) The evidential burden is on the Company to establish a prima facie case that coronavirus had a "financial effect" on it before the presentation of the petition, "that is to say the Company's financial position has worsened in consequence of, or for reasons relating to, coronavirus."

(2) Such financial effect, he held, need not be direct:

"I accept that it would be sufficient for the purposes of para.5(1)(c) of Schedule 10 to the 2020 Act for the Company to demonstrate a prima facie case that coronavirus had an indirect financial effect of the type identified by [counsel for the company] (i.e. Mr Neate was unable to pay the purchase price for the Sale Shares and the Loan because of the coronavirus pandemic and this caused the Company to incur a liability which it would not otherwise have had). In this regard, I note that the definition of 'financial effect' in para.21(3) of Schedule 10 to the 2020 Act 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."

He went on, however, to hold that in the case before him the company's evidence was inadequate to demonstrate that coronavirus had had a financial effect on the company before the presentation of...