Restoring to the register of companies under CA 2006 (Davy v Pickering and others)

Guy Adams, barrister at St John’s Chambers, reviews the decision in Davy v Pickering, which concerns the directions and provisions the court can make when restoring a company to the register of companies, as specified under section 1032(3) of the Companies Act 2006 (CA 2006).

Original news

Davy v Pickering and others [2017] EWCA Civ 30, [2017] All ER (D) 104 (Jan)

The Court of Appeal, Civil Division, allowed the appellants’ appeal against a judge’s decision to restore a company to the register of companies, where the respondent sought to pursue a claim for compensation regarding alleged negligence on the part of the company. The court held that, on the evidence, it was not possible to conclude that the respondent would have taken the required acts against the company in the relevant time period.

What practical lessons can those advising take away from this case?

That in order to obtain a limitation direction upon the restoration of a company to the register it is necessary to establish a clear causal link between the dissolution of a company and the failure to bring proceedings within the applicable limitation period. Any application for limitation direction should therefore be supported by evidence that, but for the fact that the company had been struck off the register, proceedings would have been issued on a date within the relevant limitation period.

What was the background to the appeal?

Mr Davy, a former flight officer for BA, alleges that he was given negligent advice by a company, then called Heather Moor & Edgecomb Limited, to transfer his pension plan out of the BA company scheme in 2001. He further alleges that the company, which was owned and directed by Mr and Mrs Pickering, had transferred valuable assets to its shareholders and their pension trustee in 2010 at an undervalue. This left the company with no assets to meet any claim he might make at the time it was struck off the register in 2012.

What were the issues before the Court of Appeal?

The principal issue was whether it was sufficient, as the judge at first instance had found ([2015] EWHC 380 (Ch), [2015] All ER (D) 238 (Feb)) that the claimant had lost a chance to present the winding-up petition in time for a liquidator to make summary claims that the assets were transferred at an undervalue and to start proceedings against the company, or whether he had to prove on the balance of probabilities that he would have done.

Two further points were also argued on behalf of the company and Mr and Mrs Pickering.

First, it was argued that a direction that interfered with the company’s legal rights to raise a limitation defence or by extending the time for a liquidator to exercise the statutory remedies under the Insolvency Act 1986 should only be made in exceptional circumstances

Second, where a company had not been formally wound-up in accordance with the statutory procedures, and thereby ceased to exist, the company factually remained in existence as an unregistered company despite its technical dissolution. It could therefore be wound-up as an unregistered company without restoration to the register and/or proceedings, which were not a nullity, could be taken against it. In so far as the company’s assets vested in the Crown as bona vacantia upon a technical dissolution, the Crown took such assets subject to the company’s equitable obligation to apply them in the discharge of the company’s debts—thereby only obtaining a defeasible interest. Such assets were therefore available to a creditor by way or equitable execution or to a liquidator upon the winding-up of the unregistered company. It followed that a technical dissolution did not prevent such steps being taken.

What did the Court of Appeal decide and why?

The Court of Appeal allowed the appeal on the basis that CA 2006, s 1032(3) had to be exercised for its stated purpose and then only if such direction seemed just. The first question was whether a claimant would in fact have issued proceedings if the company had not been struck off the register. The test was one of probability and loss of a chance was insufficient.

It agreed with the judge at first instance that a limitation direction for the benefit of a creditor did not require exceptional circumstances, but adopted the judge’s formulation (para [28]) that proper regard needed to be given to the statutory regime under the Limitation Act 1980.

It also rejected the suggestion that proceeding should be started against the company or a petition presented for the winding-up of the company before applying for its restoration for the same reasons as the judge—namely that it was inconsistent with the way the courts had approached limitation directions since 1952 and had the potential to penalise the course of not commencing invalid proceedings.

To what extent is the judgment helpful in clarifying the law in this area?

The judgment makes it clear that the court does not have a general discretion to make a limitation direction in favour of a claimant merely because there was a period in which the company had been struck off the register. Rather a claimant has to prove that it was in fact prevented from bringing proceedings.

Interviewed by Bridget O’Connell.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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