Company Restoration – The Hidden Dangers

By Levis on

When a company is liquidated the company is struck off the register and no longer exists as a legal entity. At this point, all the legal liabilities of the company become void and unenforceable, as clearly there is no one to enforce them against. This is often one of the main reasons companies of all sizes are wound up. However, this may not be the end of the story. Depending on how and why the company was dissolved, it is possible to subsequently restore a company by a court order. If this process is successful, then section 1032 (1) of the Companies Act 2006 states:  “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”.

So what then happens to any liabilities that the company held before winding up?

The Court of Appeal answered this question in Peaktone Ltd v Joddrell [2012] EWCA Civ 103 (‘Peakstone’). This case concerned a former employee who wished to bring a compensation claim against his former employer for hearing loss. He issued proceedings against the defendant only to find that they had been recently dissolved. The claimant successfully applied for the company to be restored so that he could continue his claim. However, on restoration, the company then applied to strike out the claimant’s claim on the basis that he had issued proceedings when the company was not in existence.

The Court of Appeal sided with the claimant and dismissed the defendant’s application. The Court held that the effect of S. 1032 (1) is literal and parliament had intended to use exactly the words included in S.1032(1). Therefore, the effect a restoration order was to retrospectively validate everything done during the period the company was dissolved and all liabilities that the company previously held once again become valid and enforceable.

This decision acts as a warning to all parties that are considering trying to restore a historic company. Applicants should be very careful that they satisfy themselves that the company does not have any outstanding liability from the period before dissolution. If not, the restored company may find that it is ambushed by historic creditors and the purpose of restoration could be defeated.

Do you need advice or assistance concerning a company? If so the experienced commercial team at Levi Solicitors can help you. 

Contact our solicitors in Wakefield for a free consultation 01924 692 125.