One of the key restrictions imposed by the Corporate Insolvency and Governance Act 2020 (“CIGA”) (Schedule 10) which came into force on 26 June 2020 was to temporarily restrict winding up proceedings being taken on the basis of statutory demands and to temporarily stop winding-up proceedings where COVID-19 has had a financial effect on the relevant company which is the subject of such proceedings. During the relevant period (initially 27 April 2020 to 30 September 2020, and further extended to 30 September 2021 at which point they were replaced with new restrictions), any creditor asking a court to make a winding up order on the grounds that a company is unable to pay its debts must first demonstrate that such inability was not caused by the pandemic.

There have now been a few cases dealing with winding up petitions issued during the relevant period, with the most recent being Citibank, NA, London Branch v Speciality Steel UK Ltd & Ors [2022] EWHC 1359 (Ch) (“Speciality Steel”), which we have considered below.


The petitioner in Speciality Steel was Citibank, N.A. which was the note trustee for a number of notes issued by Greensill Capital (UK) limited (“GCUK”) under various note programmes, with Credit Suisse being the majority bond holder. Citibank served petitions in March 2021 on three respondent companies: (i) Speciality Steel UK Limited, (ii) Liberty MDR Treasury UK Ltd, and (iii) Liberty Commodities Limited (together, the “Companies”). The Companies form part of an informal group known as the GFG Alliance, owned and operated by Mr Sanjeev Gupta. The note programmes were backed by receivables sold by the Companies as part of wider trade finance operations within the GFG Alliance, and the financing received from GCUK provided the primary source of the Companies' working capital.

In determining whether it is likely that a winding up order will be made with respect to the Companies, or whether the petitions should be struck out, the court looked at three main questions:

  • Para 2 of Schedule 10, CIGA – whether Citibank had reasonable belief that Coronavirus did not have an effect on the Companies when issuing the petitions

The was no argument that the belief stated in para 2 of Schedule 10 was to be assessed on a subjective basis. In forming its belief, Citibank relied on various external sources (including reports provided by Credit Suisse) which the Companies argued was not reasonable. The Judge noted that most petitioners will not have actual knowledge of a debtor company's corporate governance and that “petitioners may reasonably be viewed as strangers to the affairs of the counterparty”. Citibank knew that in the period March 2020 to 28 February 2021 the Companies had continued to trade and pay their debts. The Judge took a practical approach and noted that Citibank did not hold its stated belief purely on the basis of external reports, but also relied on the Companies' failure to meet payment demands in early March 2021. These failures informed Citibank that the Companies could not pay their debts as they fell due.

There are a number of complex factual matters at play in respect of the GFG Alliance financing structure, but the Judge appeared to take a holistic view: “the knowledge that the Companies continued to trade and operate (save for short periods of lock down) during the Coronavirus period; knowledge that the Companies were heavily reliant on financing; the loss of the "primary source" of financing in early March 2021 and failure to meet demands made shortly after the collapse of GCUK together with the other external reports lead me to conclude it was reasonable for Petitioner to hold the belief specified in Paragraph 2(4) of Schedule 10” (para 100).

  • Paragraph 5(1) of Schedule 10, CIGA - Did it appear that Coronavirus had an effect?

Paragraph 5(1) provides that only after the respondent company has shown that Coronavirus "appears" to have had "a financial effect", is paragraph 5 engaged. 

The Judge was quite critical of the lack of evidence put forward in relation to the Companies' financial position, nevertheless, he acknowledged that the threshold test in Paragraph 5(1)(c) is sufficiently low enough for external evidence to be taken into account. It was accepted that given that the lockdowns prevented trade and caused closure of factories, supply chain issues and depressed revenues, it did “appear” that Coronavirus had a financial effect on the Companies from March 2020 to December 2020.  Further although the gap in financial information from December 2020 to March 2021 was less clear, he was prepared (just) to  accept the Companies' financial affairs became worse as a result of Coronavirus during this period. Paragraph 5 of Schedule 10 was therefore deemed to be engaged.

  • Paragraph 5(3) of Schedule 10, CIGA – Did Coronavirus cause the Companies' inability to pay its debts as they fell due?

Once paragraph 5 is engaged, the question to be decided having regard to the counterfactual, is whether the companies are likely to be wound up regardless of the effects of Coronavirus: "even if Coronavirus had not had a financial effect".

The Judge considered whether, but for Coronavirus, the Companies were viable businesses. The key issue in Speciality Steel seemed to be the lack of evidence (and the Judge was clear that the Court would not, in such cases, make any inferences of fact in the Companies' favour), and the inability to draw a causal link between the effects of Coronavirus, which, on the basis of the facts, appeared to transpire well before the Companies actually experienced payment difficulties with Citibank in March 2021.

Again, the Court appeared to take a holistic view of the issues faced by the GFG Alliance and considered GCUK's administration (as the primary funder for the Companies) and inability to obtain alternative credit insurance in the market. A significant piece of evidence however was the open correspondence from Mr Gupta in February 2021 in which he stated that “the business is currently cashflow positive and in a relatively strong position” and that withdrawal of credit finance would “certainly precipitate insolvency”. The Judge placed great weight on this evidence given the authorship and its contemporaneous quality. After GCUK went into administration the Companies did not sell any receivables and received no credit finance. They were also unable to attract an alternative financier.

All in all, on the basis of the facts, the Judge found that there was no causal link between the Companies' failure to pay its debts and “a financial effect” as defined in Schedule 10 of CIGA, and therefore the ground relied on for winding up the Companies would have arisen even if Coronavirus did not have an effect.

Concluding remarks

Speciality Steel, much like preceding authorities on post-CIGA creditor winding up petitions, affirms that the threshold for showing that a company's financial woes was caused by Coronavirus is a low threshold. Even so, there is an evidential burden that needs to be satisfied by the debtor, and there needs to be a causal link between the financial difficulties caused by Coronavirus and the inability to meet debt obligations. Among other factors, the courts will likely take into account the passage of time between the debtor experiencing the effects of Coronavirus and the point at which it is unable to satisfy its debts as they fall due, and public statements made by key personnel about the debtor's financial health, in assessing that question of causation.

Originally Published 21 June 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.