Insolvency – Termination notice – Event of default – Parties entering agreement for sale of properties – Claimant being struck off companies register – Respondent terminating agreement – Claimant being restored to register and challenging termination notice – Arbitrator holding event of default arose when appellant struck off and agreement validly terminated – Claimant appealing – Whether termination surviving claimant’s restoration to register – Appeal dismissed
The claimant and the defendant entered into an agreement for the sale of properties, known as Hawarden Airfield, Broughton, and Filton Main Site, Bristol, for the sum of £93m. Under the terms of the agreement the sale was due to complete on a date to be determined between 21 January 2020 and 1 July 2022. The claimant was incorporated specifically for the purpose of entering into the agreement and did not carry on any business or own any assets other than its rights under the agreement. The agreement contained an arbitration clause and a termination clause. The latter gave the respondent power to terminate the agreement if the appellant suffered an “event of default”, including being struck off the companies register.
The claimant was struck off on 31 May 2016 for failure to comply with filing requirements. On 2 June, the defendant served a notice of termination under the agreement. The claimant was restored to the register on 28 July. It challenged the validity of the termination relying on section 1028(1) of the Companies Act 2006, which provided that a company which had been administratively restored to the register was deemed to have continued in existence as if it had not been struck off.
The defendant commenced arbitration proceedings. The arbitrator held that an event of default had arisen when the appellant was struck off; that the agreement had been validly terminated; and that the termination survived the claimant’s restoration to the register.
The claimant appealed against that decision seeking relief under section 1028(3) which provided for the court to place the company and all other persons in the same position, as nearly as might be, as if the company had not been struck off.
Held: The appeal was dismissed.
(1) Section 1028(1) provided that the general effect of administrative restoration to the register was that the company was deemed to have continued in existence as if it had not been dissolved or struck off the register. Administrative restoration was targeted at cases where there was no third party interest or where there was anticipated to be no significant third party effect. The paradigm was where a company did not realise that it had been struck off and might have dealt with a party which thought it was an existing entity.
(2) The authorities did not support the proposition that the deeming provision was unlimited in its ambit. The deeming provision could operate effectively against the wishes of a third party but restoration did not produce a reversal in all circumstances. There was nothing in the authorities which dealt directly with a situation such as the present, or which produced a statement of principle which should be taken as binding here. It was clear that the deeming provision was of very wide effect and that, where it arose in situations where what was in issue was the validity of an act performed by a company at a time when it was removed from the register or dissolved prior to restoration, that restoration and the deeming effect of the restoration would operate to give force to acts which would not otherwise have had force. Everything that would have happened, had the company continued in existence, was effectively deemed to have happened. That was consistent with the statutory purpose, so far as it could be discerned, and with the wording of the section. It was also different from saying everything which had in fact happened, including acts by third parties in reliance on their knowledge of the then status quo, had to be deemed not to have happened and unpicked: Hounslow Badminton Association v Registrar of Companies [2013] EWHC 2961 (Ch) applied. Tymans v Craven [1952] 2 QB 100, Re Priceland Ltd [1997] BCC 207; [1996] PLSCS 54, Orchidway Properties Ltd v Fairlight Commercial Ltd [2002] EWHC 1716 (Ch) and Contract Facilities Ltd v Rees [2002] EWHC 2939 (QB) considered.
(3) Although section 1028(1) was unrestricted in its terms, that was not true of the section as a whole: section 1028(3) contained the words “as nearly as may be”, which indicated that there would be some situations where it was not possible to restore the position that would have pertained had the company not been struck off. The appellant’s approach would effectively deprive clauses such as the termination provision in the agreement of effect, particularly as administrative restoration could occur at any point up to six years after removal from the register. Moreover, it would follow that the notice of termination was invalid and in breach of contract. Therefore, considerable practical difficulties were likely to follow if the deeming provision were to operate in cases such as the instant one. The arbitrator had been correct to conclude that the defendant’s termination did not fall to be re-assessed retrospectively.
(4) The termination clause was clearly worded. The trigger for the event of default was being struck off the register. The entire process would only be commenced if the company failed to comply with its statutory obligations. It was therefore something of a challenge for a company to be struck off: see section 2000 of the 2006 Act. It was not draconian for a party to contract for the right to terminate a contract with a company which was in such a state of disarray that it failed to comply with its statutory obligations and respond to warning notices from the Companies Registrar.
David Lord QC and Sebastian Kokelaar (instructed by Richard Slade & Co Plc) appeared for the appellant; Fiona Parkin QC and Patrick Harty (instructed by Ashurst LLP) appeared for the respondent.
Eileen O’Grady, barrister
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