County Leasing Asset Management Ltd & Ors v Hawkes

A limitation direction in favour of a restored company may be made only in exceptional circumstances. The applicant bears the burden of showing that the company would probably have commenced proceedings within the limitation period had it not been dissolved. A possibility that the claim might have been pursued is insufficient.

Even where that causal requirement is met, the court must decide whether the direction is just. It must recognise the public interest in preventing stale claims and the prejudice caused by removing an accrued limitation defence. The restoration jurisdiction should not substitute for relief which the statutory limitation regime withholds because of impecuniosity, inadequate funding or a responsible office-holder’s failure to pursue a claim.

A company entered liquidation after selling its assets through a sale-and-leaseback transaction. Its liquidator investigated possible claims arising from that transaction but neither pursued nor assigned them before dissolving the company. The company was later restored to the register, and its claims were assigned to Mr Hawkes after the primary limitation periods had expired.

Andrews J granted a direction under section 1032(3) of the Companies Act 2006, suspending time during the dissolution. She considered that possible concerns about the former liquidator’s independence constituted exceptional circumstances.

The defendants appealed. The central issues were whether the approach in Regent Leisuretime v Natwest Finance Limited [2003] EWCA Civ 391 formed part of its ratio, what principles governed a limitation direction in favour of a restored company, and whether the circumstances justified such a direction.

1. The appeal was allowed and the limitation direction set aside. The reasoning in Regent Leisuretime v Natwest Finance Limited [2003] EWCA Civ 391 concerning the exercise of the discretion formed part of that decision’s ratio. The Court of Appeal was therefore bound to hold that a limitation direction in favour of a restored company may be made only in exceptional circumstances. Such a direction overrides the statutory limitation regime, and fairness will generally require the company to meet a limitation defence through that regime.

2. Section 1032(3) of the Companies Act 2006 requires the court to consider what probably would have happened if the company had not been dissolved. The applicant must show that proceedings probably would have been commenced within time. This causal requirement asks whether dissolution was the real reason why the claim was not pursued. It should guide, but not rigidly control, the exercise of the discretion.

3. Satisfying causation is not sufficient. The court must also determine whether granting a further opportunity is just. Relevant considerations include the prejudice caused by removing an accrued limitation defence, the public interest in preventing stale claims, and whether dissolution resulted from a deliberate decision by the person responsible for the company’s affairs.

4. The applicant bears the burden of establishing exceptional circumstances on the balance of probabilities. A mere possibility that a liquidator acted improperly cannot justify a limitation direction. The statutory discretion should not relieve a company from the consequences of impecuniosity, lack of litigation funding, the absence of a willing assignee or an office-holder’s ordinary failure to pursue a claim where the limitation regime itself provides no relief.

5. Andrews J had focused on why the liquidator failed to pursue the claims before dissolution, without deciding whether they probably would have been brought before limitation expired had the company remained registered. She also placed excessive weight on a possibility of misconduct which had not been proved.

6. On reconsidering the discretion, the court found no evidence that the company, Mr Hawkes or another assignee probably would have commenced proceedings in time. Nor did the facts establish circumstances making a second opportunity just. Briggs LJ gave the judgment; King and Jackson LJJ agreed.

1. Court of Appeal (Civil Division): Allowed the appeal and set aside the limitation direction made under section 1032(3) of the Companies Act 2006.

2. High Court, Chancery Division, Companies Court: Andrews J granted a limitation direction in favour of the restored company and its assignee by an order dated 11 April 2014. No neutral citation is stated.