Calling time

The law on limitation directions – a useful tool for junior litigators attempting to restore companies to the register – has finally been anchored down by the courts. Ben Harding reports on the practical effect

A limitation direction restoring dissolved companies to the register is an oft-used tool for parties seeking relief after wrongful conduct comes to light. 

After two decisions of the Court of Appeal in County Leasing Asset Management Ltd and others v Hawkes [2015] EWCA Civ 1251 and Davy v Pickering and others [2017] EWCA Civ 30, there is now authoritative guidance on how the court should determine in a particular case whether the jurisdiction is to be exercised.

Time run: court’s powers to order restoration

Under the Companies Act 2006 (CA 2006) the court has power, when a company is restored to the register, to ‘give such directions and make such provision as seems just 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 the register’. This article concerns s 1032(3) and restoration by court order under 
s 1031; though the court has a similar power under s 1028(3) in the case of ‘administrative’ restoration under s 1027.

The court’s power extends to ordering that for limitation purposes time should be deemed not to have run for some or all of the period when the company was dissolved (a ‘limitation direction’). The reason for seeking a direction is that the effect of restoration is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register (s 1032(1)), for all purposes including the running and expiry of limitation periods: Peaktone Ltd v Joddrell [2012] EWCA Civ 1035.

A limitation direction will not be made as a matter of routine or without good reason: Re Lindsay Bowman Ltd [1969] 3 All ER 601. The jurisdiction to make one in favour of the company itself is only to be exercised in ‘exceptional’ circumstances: Regent Leisuretime Ltd v Natwest Finance [2003] EWCA Civ 391. The main reason is that it will not generally ‘seem just’ to deprive a defendant of a limitation defence.

Davy v Pickering and the window of opportunity

Mr Davy wished to pursue a claim for damages for professional negligence against a financial services company for poor investment advice. He first became aware of a possible claim in July 2011 and complained to the Financial Ombudsman Service, which wrote to the company. The former directors and shareholders of the company applied to the Registrar of Companies in November 2011 for voluntary striking off pursuant to s 1003 of the CA 2006. They did not give the claimant notice of the application and he did not see any advert in the Gazette. His evidence was that he would have objected had he known. The company was then struck off the register, and dissolved on 20 March 2012.

The claimant applied in November 2013 to restore the company to the register and further sought two directions under s 1032(3). The first was a limitation direction in respect of his claim against the company. The second was a somewhat exotic direction that if he petitioned for the winding up of the company within 14 days of the making of the order, the petition would be deemed to have been presented on the date of dissolution of the company (‘the Petition Direction’).

The reason for the claimant’s application was that the company once restored would have no assets or insurance to meet his claim; but he believed that the director-shareholders had distributed its assets to themselves within the two years prior to dissolution. The intended effect of the Petition Direction would be to move the ‘relevant period’ for the purposes of the antecedent transaction provisions of the Insolvency Act 1986 back to end on the date of dissolution. (See also Barclays Bank plc v Registrar of Companies and others [2015] EWHC 2806 (Ch) in which an application for a similar direction – made with a view to creating a ‘seamless’ insolvency back through to the appointment of an administrator of the company – was refused by Norris J.)

HHJ Keyser QC, sitting as a judge of the High Court, made both directions. He held that the claimant had lost a ‘window of opportunity’ to establish his claim and present a petition; and the directions sought were the best attainable means of restoring that opportunity and putting him in the position he would have been had the company not been dissolved (as intended by s 1023(3)).

The Court of Appeal allowed the directors’ appeal against the directions. David Richards LJ held that the Court of Appeal’s decision in County Leasing (handed down after the first instance decision in Davy) had established that the discretion to make a limitation direction required in the first place a causative link between the dissolution of the company, and the failure to commence the proceedings and present the petition. If that element were established, satisfying the statutory purpose, it would then be necessary to consider still if it was just to make a direction.

The judge had therefore erred in holding that the ‘purpose test’ was satisfied. It was not enough that the claimant had lost a ‘window of opportunity’. The Court of Appeal concluded that the evidence showed the claimant would have objected to the application to strike the company from the register had he known about it, but no more. The evidence did not even establish that the claimant ‘might well have’ either established a claim or issued proceedings or presented a petition had the company not been dissolved.

As the application fell at the first hurdle, it was not necessary to consider the merits of the Petition Direction specifically. The court held that jurisdiction was wide enough to make such an order (as conceded at first instance); but that careful consideration would need to be given in view of the far-reaching effects of a winding up order on the company, its property, its creditors and members and all those who had dealt with it. It ‘may ordinarily be just’ to enable all persons adversely affected to be given notice of the application and the opportunity to be heard. A petition ‘might well have been just’ in this case (as there was no one likely to be affected than Davy and the shareholders who had received the company’s property).

The causal link in County Leasing v Hawkes

The earlier decision concerned an appeal from an order of Andrews J making limitation directions in favour of a company and assignee of its claims. Briggs LJ, with whom King and Jackson LJJ agreed, held that the exercise of the court’s discretion under s 1032(3) had to be considered in two steps:

  • First, the court must be satisfied that the company would have commenced proceedings had it not been dissolved.
  • Secondly, the court must still ask whether it would be just to provide the company with that opportunity to pursue that claim out of time.

This followed, in his judgment, from the wording of s 1032(3) itself. A limitation direction would not be restoring the position as it would have been, unless the court could be satisfied on evidence that but for the dissolution the claimant would have issued proceedings in time.

The court held that Andrews J had erred in her approach. She had not analysed whether the claims would have been pursued if the company had not been dissolved and so had not considered the causation element. The court concluded that the evidence was insufficient to establish it.

A further error was that the judge had concentrated almost exclusively on the reasons why the company (in administration and then liquidation) had not pursued its claims before the date of dissolution. She had been unable to conclude the liquidator had been in breach of his duties, but could not discount the possibility that his decision had been influenced by improper considerations (as the applicant alleged). The risk of injustice to the company was in her judgment enough to justify a limitation direction, in order to protect against that risk. Briggs LJ was in no doubt that this was ‘a wholly inadequate basis’ on which to make a limitation direction: the burden was squarely on the party seeking the direction and ‘the court is concerned with probabilities, not possibilities’.

He further observed that because the company had not pursued its claims as a result of a deliberate decision by its liquidator, it was ‘by no means clear’ that a limitation direction would have been just even if the causation element had been present.

Practical points

  • It seems likely that limitation directions (let alone petition directions) will now be made infrequently if the two-step approach is applied rigorously.
  • As Davy shows, a company may in practice be struck off without its creditors actually finding out at the time. Those conducting litigation should be alert to this, keep the position under review and bear in mind that it may be necessary to prove that a claim would have been issued before the expiry limitation.
  • Though in theory possible, it is neither necessary nor appropriate to issue proceedings first, then seek a restoration order to ‘validate’ the proceedings. The Court of Appeal held in Davy that doing so would be inconsistent with established practice; and that to hold otherwise would penalise the sensible course of not commencing invalid proceedings.
  • Any limitation direction sought should cover all claims which may be pursued. The proposed direction in Davy was apparently broad enough to cover any claims by Davy. By contrast in another leg of the County Leasing case, the applicant sought permission to amend to plead a new claim and faced the argument that the new claim was out of time because it was not covered by the limitation direction that had been made in April 2014 (which had been limited to the draft claim form and particulars of claim before the judge). The argument succeeded: the new claim was out of time and it was far too late (on 24 February 2015, 10 months later) to apply for a further limitation direction: [2015] EWHC 1929 (Ch).
  • It should be noted that neither County Leasing nor Davy concerned claims for damages for personal injury (within the meaning of s 1030(1) CA 2006). It is undecided whether the two-step approach will apply to applications for limitation directions in respect of such claims. Whether it will or not, regard should be had to the judgment in Smith v White Knight Laundry Ltd [2001] EWCA Civ 660 setting out the procedure to be followed in such cases.
  • Davy and County Leasing have been applied in Housemaker Services Ltd v Cole and another [2017] EWHC 753 (Ch).

Contributor Ben Harding, Kings Chambers, Manchester, Leeds and Birmingham

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Ben Harding

Ben practises from Kings Chambers in Manchester, Leeds and Birmingham in commercial and Chancery work. He is a member of the committee of the Northern Circuit Commercial Bar Association.