Restoration of a company – unwanted consequences

22 October, 2012

It is generally assumed that the final act in the ‘life’ of a company is when it is removed from the register of companies at Companies House (its dissolution).  However, it is possible to restore a company to the register at Companies House.  Third parties who act on the basis that the company no longer existed may find the company being brought back to life brings devastating consequences.

Dissolution can occur following liquidation, an application from the company, following action taken by Companies House (e.g. if the company has not complied with filing obligations) or by order of the court.  Upon dissolution the company’s property (and all its other rights) are deemed to belong to the Crown, Duchy of Lancaster or Duke of Cornwall, depending on where the company is situated.

It is possible for an affected party to restore the company by making an application to the court, or, alternatively, where the company was carrying on business at the time it was struck off a former director or shareholder can restore the company by filing form RT01 with Companies House (along with other supporting documents).

If the company is restored to the register it is deemed to have continued in existence as if it had not been dissolved or struck off and the court may give such directions and make such other provisions as seem just to place 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 (s. 1032(1)&(3) of the Companies Act 2006 (“s.1032”)). 

The far reaching consequences of s.1032 were confirmed in the recent case of Peaktone Limited v Joddrell [2012] EWCA Civ 1035 (“Peaktone”)1, where the Court of Appeal held that the effect of s.1032 was to retrospectively validate proceedings which were purportedly commenced against the company while it was dissolved.  This departed from previous case law which expressed concern that to automatically validate a company’s purported act while it was dissolved “might involve consequences too disastrous to be even envisaged” (Morris v Harris [1927] AC 252). 

The concerns stated in Morris v Harris may, in hindsight, appear to be overly cautious, but the restoration of a company to the register may (inadvertently) affect third parties who (probably quite reasonably) assume that once a company is dissolved that is an the end to the matter.  For example, where an exclusive distribution agreement comes to an end because the distributor company has been (‘temporarily’) dissolved and a new distributor has been appointed, what would the effect of s.1032 be if the original distributor was reinstated to the register at Companies House?

Practice points

In circumstances where it would be appropriate for a contractual relationship to come to an end following the (‘temporary’) dissolution of a company (for example, in a lease or a exclusive distribution agreement) you should ensure that the contract is worded so that it will be terminated even if the company is subsequently restored to the register, notwithstanding the provisions of s.1032.

1Link to judgment: Peaktone Limited v Joddrell [2012] EWCA Civ 1035