The Limitation Act 1980 prescribes various periods of time in which a claim must be brought. In the event that this is not undertaken within the specified period, the cause of action will be statute barred and as such unenforceable.
In the case of a simple contract, the period is six years and in general begins to run from the date on which the cause of action accrued. In order to 'stop the clock', proceedings (a claim) will have to be brought.
Where a claim is for a debt (liquidated sum), the clock is restarted if the debtor acknowledges his liability for the claim. However, once time runs out, it cannot be revived.
What appears to be a straightforward situation is less clear where a debtor company is insolvent. The Insolvency Act 1986 is silent in relation to limitation.
However, where a company is in liquidation, the clock stops for limitation purposes as liquidation has a statutory scheme for payment to creditors.
Schedule B(1) of the Insolvency Act 1986 introduced by the Enterprise Act 2002 contains an express power for an administrator to make distributions to creditors. The Insolvency Act 1986 prior to the Enterprise Act coming into force did not contain such a power. Does this make a difference?
The court has recently decided that in pre-Enterprise Act administrations the clock will not stop unless a creditor's claim has been acknowledged. (See re Leyland Printing Co Limited (in administration) ).
What is unknown is what the court’s approach will be in post Enterprise Act administrations. By analogy with the position in liquidation, the court may decide that the clock also stops, but there is no decision on the point. In light of this resulting uncertainty, creditors are best advised to:
- obtain the administrator’s acknowledgement of the debt - therefore restarting the clock; and
- where the limitation period is about to run out, get the consent of the administrator or the court’s permission to issue proceedings which therefore stop the clock.