In a recent decision1 the Court of Appeal clarified the meaning and effect of a restoration order under the Companies Act 2006 procedure by holding that a court order restoring a dissolved company to the register of companies retrospectively validates proceedings commenced against the company during the period of its dissolution.
When a company is struck off the register of companies, it loses its legal personality. Sometimes companies can be restored to the register after dissolution by applying to the court for a restoration order. This is often the case if a third party has a claim against the dissolved company that cannot be resolved without commencing proceedings against it.
Under the Companies Act 1985 (CA85) there were two processes for applying to the court to have a company reinstated:
- Section 653 CA85 conferred on the court a power in limited circumstances (but exercisable for up to 20 years after dissolution) to order the restoration of a company that had been previously struck of by the Registrar. The effect of the order was that the company was "deemed to have continued in existence as if its name had not been struck off".
- Section 651 CA85 conferred on the court a more general power (exercisable only within two years after dissolution) to make an order declaring the dissolution of a company as void. This meant that "such proceedings may be taken as might have been taken if the company had not been dissolved".
Pursuant to section 1032 of the Companies Act 2006 (CA06), these two processes have been streamlined to create a single procedure for the courts to restore a company to the register. The main differences to the previous procedure are:
(1) Time limit: Applications for restoration of a company may only be brought within six years from the date of dissolution of the company. However, an application for restoring a dissolved company to the register for the purpose of bringing a personal injury claim for damages against the company may be brought at any time.
(2) Effect of restoration order. The effect of a restoration order which under the CA85 had only applied in certain limited circumstances (section 653 CA85), namely that the company is "deemed to have continued in existence as if its name had not been struck off", now applies generally in every case.
The facts in Peakton Ltd v Kenneth Joddrell
Mr Joddrell brought a personal injury claim for loss of hearing against his former employer, Peaktone Limited (Peaktone). Mr Joddrell did not know of his injury until some time after his employment at Peaktone had ceased.
Mr Joddrell purported to issue proceedings against Peaktone without realising that Peaktone had been struck off the register of companies. Mr Joddrell tried to serve Peaktone with the proceedings at Peaktone's former registered office but was informed that Peaktone had been dissolved.
Mr Joddrell obtained an order from the court, restoring Peaktone to the register for the purpose of commencing proceedings against it. Mr Joddrell failed to disclose at this time that he had already purported to commence proceedings against Peaktone.
Peaktone subsequently applied for the first personal injury claim to be struck out on the grounds that it was an abuse of the court's processes and that they had not been properly served as Peaktone had been dissolved at the time of the attempted service.
The County Court agreed with Peaktone and struck out Mr Joddrell's claim. On appeal, the High Court set aside the County Court's order. Peaktone was given permission to appeal to the Court of Appeal.
The decision of the Court of Appeal
The Court of Appeal clarified the consequences of restoring a company to the register under the new statutory regime of section 1032 of CA06 holding that a court order under section 1032 (1) of CA06 retrospectively validates actions brought against a company during its period of dissolution. The retrospective effect of such a court order also validates any procedural issues that arise such as, for instance, in this case the fact that Joddrell served Peaktone with the proceedings at what prior to dissolution had been Peaktone's registered office.
What this means
Restoration of a company may be and is a useful tool for lenders or claimants if there are assets which were held by the dissolved company at the time of dissolution that can be charged (or indeed repossessed) or if there is an insurance policy that may give cover but can only be activated once the company is restored. Of course, a claimant should always do careful searches on the proposed defendants and so issuing proceedings against a dissolved company before applying for a restoration order should not happen in practice. However, this decision is a useful reminder that if this did occur, there may still be a way out.