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Company restoration and limitation periods: Do all claims remain stayed against a company in liquidation?

Holmes v S & B Concrete Ltd
High Court (QB)
20 August 2020

In a judgment handed down last week, the High Court dismissed a claimant's appeal concerning the effect of a company's liquidation on limitation in a noise induced hearing loss claim. DWF's Stephen Symington, who acted on behalf of the successful respondent explains the decision in Holmes v S & B Concrete Limited (2020).

Background to claim

Mr. Holmes, the claimant, was a former employee of S & B Concrete Limited from 1986 to 1993, and brought a claim in 2018 against the company for noise induced hearing loss.

S & B Concrete Limited had dissolved in 1995 following a voluntary winding-up of the company pursuant to section 106 of the Insolvency Act 1986, however, the claimant applied, at the same time as serving his claim form, to have the company restored back to its status immediately prior to dissolution. The company was duly restored to the Register with an order that it continue in creditors' voluntary liquidation. 

Decision at first instance

At first instance, HHJ Owen QC found the claimant to have had a date of knowledge, for the purposes of the Limitation Act 1980, of "at least mid-2007". Therefore, the claim was at least some 7 years statute-barred and it would not be equitable for him to exercise his discretion to extend the limitation period.

In a separate argument the claimant had sought to rely on the case of Financial Services Compensation Scheme Ltd v Larnell (Insurances) Ltd (In Liquidation) [2005] EWCA Civ 1408, arguing that the effect of restoration was retrospective, and put the company in a position as if the dissolution had never happened. Therefore, as the company remained in liquidation, all claims would be stayed from 1995 for the purposes of the Limitation Act 1980.

HHJ Owen distinguished Financial Services on the ground that it involved different statutory provisions concerning limitation, and that the correct approach was to follow the decision in Smith v White Knight Laundry Ltd [2001] EWCA Civ 660 so that "the approach which would do justice between the parties was to determine the two issues – limitation and restoration of the company to the Register – concurrently so that if, as was the case, it appeared that the merits of the section 33 issue were against the claimant, the court could refuse to restore the company to the register and refuse to disapply section 11".

The claimant appealed the decision.

High Court decision on appeal

The appeal was heard by Mr. Justice Spencer who found that, when drafting the provision relating to limitation in the Companies Act 2006, sections 1029 and 1030, "Parliament cannot have had in mind the effect of Financial Services or its predecessor, the General Rolling Stock case, as interpreted by the claimant in the present case: otherwise, for a large number of cases like the appellant's, the restoration of the company to the Register would be automatic, the effect would be that the limitation period had never run, and there would then be no need to direct that the period between the dissolution of the company and the making of the order to restore was not to count for the purposes of the Limitation Act".

Mr. Justice Spencer determined that the Financial Services case had been correctly distinguished on the basis that the vast majority of personal injury cases would be covered by an insurance company's policy, which had cover to a statutory minimum of £2 million. This cover means the claim will ultimately be against the insurance funds which were available "outside the liquidation" which is different to the claim in Financial Services, where the claim was not "outside the liquidation" and was to be paid from company funds.

The judge considered the position where the insurance company's liability cover might not be sufficient to satisfy the claim and said that it could be a condition of restoring the company that any claim against it be limited to the liability of the insurer pursuant to the insurance policy. By doing so, the claim could be kept distinct from the situation in Financial Services, which, in the court's view, was a desirable outcome. Mr. Justice Spencer said it would mean "that a claimant whose claim was otherwise unmeritorious because he acquired the necessary knowledge more than three years before the issue of proceedings and in respect of whom it would be inequitable for the court to exercise its discretion [to extend the limitation period] would not gain an unexpected and undeserved windfall by virtue of the application of the rule set down in a 19th Century case, which, it seems to me, was never intended to apply to situations such as the present".

The correct approach

The correct approach was to follow the decision in Smith v White Knight Laundry Limited, where the Court of Appeal held that where the applicant for a restoration order was a prospective claimant in a personal injuries action in circumstances where the claim would otherwise have been statute-barred, the effect of a direction under section 651 of the Companies Act 1985 (the predecessor to section 1030 of the Companies Act 2006) to restore the company was the same as a grant of relief under section 33 of the Limitation Act 1980.  This being the case, the judge considering the application to restore the company would need to hear from the defendant/ respondent to determine if the claimant would succeed, just as would be the case if the claimant had made an application pursuant to section 33 of the Limitation Act 1980. With this in mind, the order restoring the company should be set aside so that the court could hear from the insurers as to prejudice caused by the delay.

The appeal was dismissed.

Suggestions to the Rules Committee for change

In obiter dicta, Mr Justice Spencer encouraged the Rules Committee to give consideration to a change in the rules so as to require a claimant to give notice to the company’s insurers of their intended restoration at the time of making the application as the insurer is the claimant's ultimate target for compensation. That way, the insurers can assist the court in deterring the claimant's prospects of success on limitation at the time of the application for restoration. 

Contact

For further information, please contact Stephen Symington at stephen.symington@dwf.law

By Stephen Symington

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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