Maxima Creditor Resolutions Limited v John Thomas Fealy & Anor

The High Court considered the meaning of the non-dormancy requirement in the third excepted case in Insolvency Rule 22.7, read with Insolvency Act 1986 ss.216–217 and Companies Act 2006 s.1169 (and s.386). The court held that the second company must have undertaken transactions required by s.386 to be entered in accounting records throughout the whole 12-month period ending the day before the earlier company went into creditors' voluntary liquidation; it is not sufficient to show trading at some time during that period. The judge accepted that a statement of affairs signed and sent to creditors on liquidation can constitute an acknowledgement of debt for Limitation Act 1980 ss.29–30 and so may restart the limitation period. Applying the statutory tests to the facts, the court found the defendant company had been non-dormant throughout the qualifying period and dismissed the claimant's s.217 claim for directors' personal liability.

Background and parties. The claimant purchases assigned debts of creditors of insolvent companies and sued two directors (the defendants) under Insolvency Act 1986 s.217 seeking to render them personally liable for debts of a second company (McFee Limited) said to have used a prohibited name after an earlier company (McFee Interiors Limited) entered creditors' voluntary liquidation.

Procedural posture and relief sought. The claimant sought recovery of assigned debts (and statutory interest) from the defendants personally under s.217. The issues narrowed to whether the claim was time-barred and whether the defendants were relieved from personal liability by the third excepted case in Insolvency Rules 2016 r.22.7 (the non-dormancy requirement).

Issues framed by the court.

• Limitation: whether the claim was statute-barred under the Limitation Act 1980 or whether the limitation period was restarted by any acknowledgement of debt, notably ML's statement of affairs.
• Construction and application of the non-dormancy requirement in r.22.7(b) (Companies Act 2006 s.1169 and s.386): whether the second company must have been non-dormant throughout the whole 12-month qualifying period and what evidence establishes non-dormancy.

Court's reasoning (concise). The judge accepted settled authorities that the third excepted case is designed to exclude non-phoenix second companies which have been established and actively trading for at least 12 months prior to the earlier company's liquidation, and emphasised the "principle against doubtful penalisation" when construing provisions that may impose criminal or significant civil liability. On limitation, the judge held (obiter) that a statement of affairs verified and sent to creditors under s.99 Insolvency Act 1986 can amount to a written acknowledgement for Limitation Act 1980 ss.29–30 and that, on the facts, the statement of affairs verified by a director restarted the limitation period so the claim was not time-barred. On r.22.7(b) the proper construction requires that the second company undertook transactions required by s.386 to be recorded throughout the whole 12-month period; mere evidence of trading at some point in that period is insufficient. Applying the facts and contemporaneous documents (including daywork sheets, applications for payment, method statements and other site paperwork), the judge found McFee Limited had "hit the ground running" from 16 November 2012 and was non-dormant throughout the qualifying period, so the defendants fell within the third excepted case.

Outcome. The claim under s.217 was dismissed because the third excepted case applied.

The claim is dismissed. The court held that, for the third excepted case in Insolvency Rule 22.7 to apply, the second company must have undertaken transactions required by Companies Act 2006 s.386 to be recorded throughout the whole 12 months ending the day before the earlier company went into liquidation; the defendants proved that McFee Limited was non-dormant throughout that qualifying period, so court permission under s.216(3) was not required and the defendants were not personally liable. The judge also held (obiter) that a director's verified statement of affairs sent to creditors can restart the Limitation Act 1980 limitation period (ss.29–30).