Davy v Pickering

The Court of Appeal allowed an appeal against a High Court order which had given two directions under section 1032(3) of the Companies Act 2006: (1) that the period of dissolution should not count for limitation purposes and (2) that a winding-up petition presented within 14 days of the paragraph coming into effect would be treated as presented on the date of dissolution. The court held that the discretion under section 1032(3) must be exercised 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", and that a limitation direction requires evidence of a causal link and a real probability that proceedings would have been commenced but for the dissolution. A mere possibility or a small "window of opportunity" is insufficient. Applying the test in County Leasing Asset Management Ltd v Hawkes [2015] EWCA Civ 1251 and other authorities, the court concluded the claimant had not shown that, on the balance of probabilities, he would have issued proceedings or presented a petition in time; the directions were therefore set aside.

Background and procedural posture:

• Heather Moor & Edgecomb Limited was struck off the register on application by its sole director, Mrs Pickering, and later restored on application by the respondent, Mr Davy. The district judge adjourned consideration of directions under section 1032(3). On application by Mr Davy the High Court (His Honour Judge Keyser QC) made two directions: a limitation direction and a petition direction. The company and its shareholders (the appellants) appealed.

Nature of the application: The respondent sought directions under section 1032(3) Companies Act 2006 to: (i) disregard the period of dissolution for the purposes of limitation (Limitation Act 1980) and (ii) treat a winding-up petition presented within a short period after the direction as if presented on the date of dissolution, thereby enabling a liquidator to pursue avoidance actions under the Insolvency Act 1986.

Issues framed:

• What is the proper test for making a limitation direction under section 1032(3) and does it differ between directions made in favour of the company and those made in favour of third parties?
• Whether a claimant who has lost time due to dissolution must show he probably would have issued proceedings or presented a petition but for the dissolution (a causative/probability test), or whether showing he was deprived of an opportunity (a lower threshold) is sufficient.
• Whether the facts established a sufficient causal link and probability to justify the limitation and petition directions.

Court’s reasoning: The court emphasised that section 1032(3) must be used to place parties "as nearly as may be" in their prior position and that, for limitation directions, there must be a clear causal link between the dissolution and the failure to bring proceedings. The analysis in County Leasing was followed: the court must ask whether, on balance of probabilities, the claimant would have commenced proceedings in time if the company had not been dissolved. The Court of Appeal rejected the lower threshold adopted by the judge below that a mere window of opportunity or the fact that the claimant was deprived of an opportunity was sufficient. Applying the correct probability test to the evidence, the court found only speculation that the claimant would have acted differently and therefore set aside both the limitation and petition directions. The court noted its regret at the company’s conduct in failing to notify a prospective creditor but held that section 1032(3) could not be used simply to remedy that loss when the requisite causal/probability test was not met.

Appeal allowed. The Court of Appeal held that directions under section 1032(3) Companies Act 2006, including limitation directions, require a clear causal link and a real probability that proceedings would have been brought (or a petition presented) but for the dissolution. A mere possibility or a small window of opportunity is insufficient. On the facts the claimant did not satisfy that test and the limitation and petition directions were set aside.

Appeal from an order of His Honour Judge Keyser QC, High Court of Justice, Chancery Division, Cardiff District Registry (3CF30187). The company had been restored to the register by District Judge James; the district judge had adjourned directions under section 1032(3) which were later given by HHJ Keyser and then appealed to the Court of Appeal ([2017] EWCA Civ 30).