Restoration of a dissolved company to the register retrospectively validates proceedings against it (Court of Appeal)

Restoration of a dissolved company to the register retrospectively validates proceedings against it (Court of Appeal)

Background

Company restoration

Once a company is struck off from the register of companies, it is dissolved and loses its legal personality. However, it is possible, in certain circumstances, to restore to the register a company that has been struck off or otherwise dissolved.

Typically, a need to restore a company to the register arises when a third party has an unresolved claim against the company and must take some action against the company to obtain compensation or redress.  A company might also need to be restored where it owned a valuable asset when it was dissolved or where it was struck off due to a failure to file returns (but had continued to trade).

Previously, under the Companies Act 1985 (CA 1985), there were two alternative procedures for applying to the court to have a company restored to the register. The Companies Act 2006 (CA 2006) introduced a single, unified court procedure for company restoration, based on section 653 of the CA 1985.  The new court procedure  is governed by sections 1029 to 1032 of the CA 2006. (There is also a new administrative restoration procedure, but this may only be used in limited circumstances.)

The relevant provisions of section 1032 of the CA 2006 (Effect of court order for restoration to the register) are:

(1) The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.
(3) The court may 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.

Tyman's Ld v Craven

In Tyman's Ld v Craven [1952] 2 QB 100, an application was made to court for the granting of a new tenancy on behalf of a company, which had actually previously been struck off the register. After the tenancy application was made, the company was restored to the register pursuant to section 353 of the Companies Act 1948 (CA 1948).

In a subsequent appeal of the tenancy application (which the County Court had dismissed due to the company having been struck off at the time the application was made) the Court of Appeal drew attention to the important differences in form and language between the two types of restoration procedure then available under sections 352 and 353 of the CA 1948 respectively. It held that an order under section 353, which, unlike section 352, provided for a restored company to "be deemed to have continued in existence as if its name had not been struck off", was effective to validate retrospectively all acts done in the name or on behalf of the company during the period between its dissolution and the restoration of its name to the register (cited at paragraph 21, Peaktone v Joddrell).

Facts

A former employee (J) of a company (P) wished to bring a personal injury claim against P for hearing loss due to his employment. J did not become aware of his injury until some years after his employment ended. J purported to issue proceedings against P in August 2009, without knowing that P had been struck off the register and dissolved pursuant to section 652 of the CA 1985 in March of that year. J attempted to serve P with the proceedings at P's former registered office, and was subsequently notified that P had been dissolved.

J then obtained an order from the Companies Court, restoring P to the register for the purpose of commencing proceedings against P. J did not, however, disclose to the Companies Court that he had already purported to commence proceedings against P, nor did he apply for directions in relation to this issue.

P subsequently applied for the original personal injury claim to be struck out on the grounds that it was an abuse of the court's process and that the proceedings had not been properly served on P (given it was dissolved at the time the proceedings were issued). The County Court agreed and struck out J's claim, but the High Court set aside this order on appeal.

The High Court held that P's restoration to the register under section 1032(1) of the CA 2006 validated the original proceedings brought by J. Alternatively, if this conclusion was wrong, the High Court held that P's challenge to J's claim as an abuse of court process was effectively a challenge to the jurisdiction of the court, and should therefore have been brought within Civil Procedure Rule 11 (CPR 11). As P had not brought an application under CPR 11, it was deemed to have submitted to the jurisdiction of the court.

P was granted permission to appeal to the Court of Appeal.

Decision

The Court of Appeal held that the effect of section 1032(1) of the CA 2006 was retrospectively to validate an action purportedly commenced by or against a company during the period of its dissolution. The court reasoned as follows:

  • Parliament had chosen to use precisely the same language in section 1032(1) as was previously used in section 653 of the CA 1985 and its predecessors. Parliament was plainly seeking to carry forward the principle of retroactivity and to apply it in a wider range of situations. There was every reason for asserting that the case law on section 653 and its predecessors (such as section 353 of the CA 1948) was both relevant and determinative to the interpretation of section 1032(1).
  • The case of Tyman's Ld v Craven, which considered section 353 of the CA 1948, was precisely on point. It was irrelevant that the previously dissolved company in Tyman's Ld was the plaintiff in the purported proceedings (rather than the defendant as in the current case). In both cases the purported proceedings were originally a nullity because one of the parties did not exist.
  • The fact that section 1032(1) provides for the "general effect" of a court order for restoration should not be read as cutting down the otherwise unrestricted language of that section.
  • The sweeping effect of section 1032(1) is illustrated by section 1032(3), which gives the Companies Court wide discretion to give directions in connection with an order under section 1032(1).
  • The narrow construction to be applied to section 1029 (Application to court for restoration to the register) and section 1030 (When application to the court may be made) should not be extended to section 1032. Sections 1029 and 1030 show that there are many different forensic routes to making a restoration order. The precise route cannot affect the meaning and effect of an order once it is made. The meaning and effect of an order is dealt with by section 1032.
  • The court's conclusion was supported by Palmer's Company Law, Sweet & Maxwell and Gore-Browne on Companies, Jordan Publishing Ltd.

The court held that it was not necessary for it to decide whether P's challenge to J's claim was also a challenge to the court's jurisdiction that should have been brought under CPR 11.

Comment

The Court of Appeal's decision helpfully clarifies the far-reaching consequences of a restoration order made under section 1032 of the CA 2006. The court was comfortable in making such an order, not just because there was judicial precedent for it, but because the retrospective nature of such restoration orders had been tested in iterations of the same provision since 1900. Although there is a line of case law that expresses strong concern that "automatically to validate [a company's purported acts while it was dissolved]... might involve consequences too disastrous to be even envisaged" (Morris v Harris [1927] AC 252 at page 257), such case law can be both distinguished and proved with hindsight to take an overly-cautious view.

In practice, it seems that the power of the court to give directions in conjunction with a retrospective order has been sufficient to counter both the procedural and substantive issues that can arise when a retrospective order is made.

Case

Peaktone Ltd v Joddrell [2012] EWCA Civ 1035 (26 July 2012)


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