Corporate insolvency – dissolution – restoration to the register – suspension of time – Limitation Act 1980

Under section 1032(3) of the Companies Act 2006, the court, when restoring a company to the register, can give directions “for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off?”.

One direction that can be given is to suspend the running of time for the purpose of the Limitation Act 1980 during the period of dissolution so as to prevent claims extant at the date of dissolution becoming time-barred before restoration. This is called a limitation direction.

The company went into liquidation following a sale of assets where it had not received the full purchase price and substantial sums had been paid to associated individuals. The liquidator investigated, but concluded that the claims against the purchaser and the individuals could not be pursued and he was unable to assign them for value. The company was then dissolved.

The company’s director later obtained an assignment of the company’s claims and applied to restore it to the register to enable those claims to be prosecuted. Andrews J made a limitation direction suspending time. The potential defendants appealed.

The Court of Appeal confirmed that there is a difference in approach between applications for a limitation direction for the benefit of creditors and applications in favour of a company. A limitation direction in favour of a company required exceptional circumstances: the court had to be satisfied (a) that the claim would probably have been brought in time if the company had not been dissolved and (b) it would be just to provide the opportunity for a claim to be brought, even that would deprive the defendant of a limitation defence. Neither criterion was satisfied in this case. The liquidator had made a decision that the claims could not be pursued and therefore dissolved the company. There was no evidence of any breach of duty by the liquidator in making that decision. The lack of funding for the claims was not an exceptional circumstance. There was no reason to give the company a further opportunity.

It will be difficult for a company to get a limitation direction to revive statute-barred claims. The decision indicates that liquidators need to be satisfied that claims belonging to the company cannot be pursued before the company is dissolved.