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Court assists creditors: Davy v Pickering & Others

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07/05/2015

Facts and Law

In 2011, some ten years after having received professional advice from the defendant company (the Company), the claimant (Mr Davy) learned that the advice had been negligent and had caused him loss. Mr Davy made a complaint to the Financial Ombudsman Service, which informed the Company of his potential claim. While the complaint was being investigated, in March 2012, the Company was dissolved. The business had been sold and assets transferred to shareholders during the two year period prior to dissolution.

In order to pursue a claim, and in order to claw back Company assets which could compensate for negligent advice, Mr Davy had to overcome certain hurdles:

Limitation: ten years had elapsed between the giving of the negligent advice and Mr Davy becoming aware of the negligence. Further time had passed between Mr Davy’s knowledge and the bringing of proceedings.
Lack of legal entity and lack of assets: having been dissolved, the Company was no longer a legal entity against which a claim could be brought and, assets having been dissipated, there was nothing from which any compensation for Mr Davy could be paid in any event.

Despite the apparent practical difficulties, Mr Davy:

  • applied to restore the Company to the register of companies and for consequential directions. (Section 1032 of the Companies Act 2006 (CA) allows the court to make any directions as seem just for restoring companies and any other persons to the position they would have been in had dissolution or strike-off not occurred.);
  • entered into a standstill agreement in respect of the applicable limitation period for the bringing of his claim. (He sought to rely on section 14A of the Limitation Act 1980 which, in latent negligence cases, effectively extends the usual six year limitation period to a date three years from the date the claimant became aware, or should have become aware, of the negligence);
  • sought a direction that the period between the Company’s dissolution and restoration did not count for limitation purposes; and
  • sought a direction that if a winding up petition be presented within 14 days of restoration the petition be deemed to have been presented on the day that the company was struck off the register and dissolved (namely 20 March 2012). This was necessary to enable a liquidator to be appointed over the Company, who could then challenge the asset-disposal transactions under the transaction-avoidance provisions in the Insolvency Act 1986. In the ordinary course it would have been necessary to present the winding-up petition within two years of the relevant transactions taking place for the liquidator to be able to make such claims.

Decision and WM Comment

The High Court made the various directions requested by Mr Davy.

Whilst excluding the period of dissolution for the purposes of limitation is a fairly well-established principle and practice, the court’s application of section 1032 (3) CA to effectively back-date a creditor’s winding-up petition so as to allow the investigation and challenge of antecedent transactions is interesting and important.

Section 1032 (3) allows the court to make such provisions as seem just for restoring a person affected by a company’s dissolution or strike off to the same position it would have been in but for the dissolution/strike off. In this case, however, the court’s decision placed the claimant in a somewhat improved position. His Honour Judge Keyser QC, sitting as a Judge of the High Court, decided it was necessary to consider whether Mr Davy had been deprived of the opportunity to petition for the Company’s winding-up during the period of its dissolution, not whether he would actually have done so (bearing in mind his knowledge – or lack of it – at the relevant time). He stated that “[I]f justice requires that the effects of the striking-off of the Company be undone by restoring to Mr Davy his lost opportunity, the risk that his position will be improved over what it might have been perhaps because he is better able to take advantage of the opportunity-seems to me to be the price of seeking the best attainable equation of positions under section 1032(3).” [2]

This could be a useful decision for creditors of dissolved companies. It demonstrates the willingness of the court to assist claimants in circumstances where assets have been moved and companies dissolved in circumstances where potential claims are pending.

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[1] Graham Frank Davy v Brian Michael Pickering (1) Ann Dolores Pickering (2) Registrar of Companies (3) and 1000654 Ltd (4) [2015] EWHC 380 (Ch)
[2] para. 43