Maxima Creditor Resolutions Limited v John Thomas Fealy & Anor

For the third excepted case under Insolvency (England and Wales) Rules 2016, the second company must have been non-dormant throughout the entire 12-month period ending the day before the first company’s insolvent liquidation. It is insufficient to show trading at some point during that period or to rely on non-dormant accounts for a wider financial year. The company need not undertake significant accounting transactions every day. Once such transactions have begun, it remains non-dormant unless and until it ceases trading. Preparatory activity alone is insufficient, but liabilities incurred for labour, materials and equipment may constitute significant accounting transactions. An assignee of an underlying company debt may bring a claim under Insolvency Act 1986, and a statement of affairs can acknowledge the debt for limitation purposes.

Maxima Creditor Resolutions Limited, an assignee of debts owed by McFee Limited, claimed against the defendants as former directors under sections 216 and 217 of the Insolvency Act 1986. McFee Limited had used a prohibited name after McFee Interiors Limited entered creditors’ voluntary liquidation. The defendants relied on the third excepted case in rule 22.7 of the Insolvency (England and Wales) Rules 2016, contending that McFee Limited had traded for more than 12 months before the liquidation. A limitation defence was also raised but conceded at trial. The central issue was whether the non-dormancy requirement required significant accounting transactions throughout the whole qualifying period.

1. Claim dismissed. The defendants established the third excepted case in rule 22.7 and were therefore not personally liable under sections 216 and 217 of the Insolvency Act 1986.
2. Rule 22.7(a) and (b) require the second company to have been known by the prohibited name, and to have not been dormant, throughout the whole 12-month period ending on the day before the first company entered liquidation. It is not enough to prove trading at some point in that period, or to rely on accounts covering a different financial period.
3. For this purpose, dormancy is determined by whether the company undertook transactions required by section 386 of the Companies Act 2006 to be entered in its accounting records. Preparatory activity, tendering or providing services without a qualifying transaction is insufficient. The company need not prove transactions every day; after qualifying transactions begin, it is non-dormant unless and until it ceases trading.
4. The court found that, from no later than 16 November 2012, McFee Limited incurred liabilities for labour, materials and equipment used on a project. Those were significant accounting transactions, and transactions continued throughout the qualifying period ending 19 November 2013.
5. The limitation observations were obiter. A section 217 claim accrues when the underlying company debt becomes payable, and the liquidation does not reset time. However, a signed statement of affairs sent to creditors can constitute an acknowledgment under sections 29 and 30 of the Limitation Act 1980, restarting the six-year period.
6. The parties were invited to agree the consequential order, including costs. Any unresolved consequential matters were to be determined on paper.