High Court: Winding up petition brought against company for unpaid rent refused

Killian Flood BL

About this case:

• Citation:
  [2021] IEHC 513
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Ms Justice Nuala Butler

The company stated that it was not liable to pay rent under the suspension clause due to the effects of the Covid-19 pandemic. The court accepted that this was a bona fide issue in the case and rejected the petitioner’s application. The court also commented that it would be inappropriate to wind up the company when the circumstances of the debt were “entirely attributable to ongoing restrictions” made by the Minister for Health.

Background

The company, Lestown Property Limited, operated a Leisureplex in the Charlestown Shopping Centre on foot of a 25-year lease provided by the petitioner. The company paid its rent up until April 2020, but then stopped the payments thereafter.

The Leisureplex had an indoor area for bowling, pool and arcade games. The facility was only accessible through the lobby of an adjacent cinema, which was leased to a different tenant and remained closed throughout the pandemic. Although there were other access points to the Leisureplex, none were suitable from a fire safety or planning perspective.

In October 2020, the petitioner served a formal demand for unpaid rent pursuant to section 570 of the Companies Act 2014 seeking €153,000. At the date of the application in February 2021, the petitioner claimed that €338,000 was owed in unpaid rent.

The petitioner accepted that the company was legally required to shut its business for significant periods since April 2020. However, there was a dispute over the length of those periods, the extent to which the company actually opened and the extent to which the closure of the cinema affected the Leisureplex’s ability to open.

More importantly, the company claimed that it did not have to pay any rent at all under the lease agreement. The lease contained a rent suspension clause where, if the company remained up to date on service charge and insurance payments, then it would not have to pay rent if the premises were destroyed or damaged from an insured risk.

The insurance policy in question covered loss, destruction or damage of the premises. There was special provision for covering the prevention of access as a result of damage to the premises. Further, under a Notifiable Diseases section, the term “damage” was extended to include the closure of the premises on the order or advice of local or governmental authority as a result of an outbreak of infectious disease at the premises.

In light of these clauses, the company claimed that the premises had been damaged and rendered unfit for use or occupation arising from the pandemic. The petitioner argued that the suspension clause only applied where the service charge payment was up to date, which was not the case. Further, the petitioner argued that the suspension clause was only activated if the physical premises was damaged or destroyed.

Additionally, it was argued that the insured risk (e.g. outbreak at the premises) had not been established and that the enforced closure of the premises did not amount to rendering the property unfit for use.

In seeking to prove its solvency, the company had lodged the €153,000 statutory demand with its solicitor. The petitioner was not satisfied by this, arguing that the company’s accounts showed no fixed assets and no cash in the bank accounts. It was also alleged that the company had admitted that it was in serious financial difficulty from correspondence.

High Court

Delivering judgment in the case, Ms Justice Nuala Butler refused to wind up the company. Citing Truck and Machinery Sales Limited v. Marubeni Komatsu Limited [1996] 1 IR 12, she stated that a winding up order is not a legitimate means of enforcing a debt that was bona fide disputed.

The court stated that the test for a bona fide dispute was necessarily lower than assessing whether the rent suspension provisions applied. Further, the court noted that merely establishing that the company could not pay the debt did not automatically mean that a winding up order would be made. The court retained an overriding discretion to refuse the application, the judge said.

The court first stated that it was obvious that all Irish businesses had been affected by Covid-19 and therefore rejected a suggestion that the correspondence showed that the company was insolvent.

Next, the court determined that there was a bona fide dispute between the parties over the operation of the suspension clause. The court did not need to determine whether either party was correct in their arguments. Instead, the court was satisfied based on the submissions of the parties that there was a real dispute over the interpretation of the clause and the insurance policy.

The court noted that certain cases which had dealt with insurance claims arising from the pandemic were of little assistance to the court because those cases dealt with different insurance policies (Brushfield Limited T/A The Clarence Hotel v. Arachas Corporate Brokers Limited [2021] IEHC 263; Aberken Limited T/A Sinnotts v. FBD Insurance [2021] IEHC 78).

Finally, the court stated that, even if there was not a bona fide dispute, it would not use its discretion to wind the company up. The events which had led to the non-payment of rent were outside the control of the parties, with the circumstances of the pandemic being extraordinary, the court said.

The court said: “I would be very reluctant to make an order winding up the company in consequence of the non-payment of a debt where the circumstances of that debt are entirely attributable to ongoing restrictions of this nature and are arguably the subject of a specific clause in the lease which would suspend the disputed liability.” Further, any other tenant would be subject to the same restrictions that the company faced, so there was not a case that the premises could be re-let to another tenant easily.

Conclusion

The court determined that there was a bona fide dispute regarding the rent suspension clause. Accordingly, the court refused the application to wind the company up.