When a company falls into insolvency there are often cvil litigation claims either in progress or in contemplation. For example, if a business’s warehouse is destroyed by a fire that was caused by employee negligence, third parties such as those who have entered into contracts with the business and those contracts cannot be completed due to stock being destroyed, may have a breach of contract claim. However, if the business was forced into insolvency following the fire, what is the position regarding time limits under the Limitation Act 1980?
What Does it Mean When a Claim is Time-Barred?
The Limitation Act 1980 provides time limits for when certain types of claims may be brought. For example, if you wish to bring a claim founded on tort, such as negligence, you have six years from the date the tort occurred to launch proceedings. In cases involving personal injury, the time limit is reduced to three years from the date of injury. In claims under contract law, the time limit is also six years. Defamation claims, on the other hand, must be brought within one year.
In most cases, time limits concerning the bringing of a claim are strictly enforced; however, in limited cases, the Court has the discretion to allow out-of-time claims to proceed.
Time Limits When a Company Falls into Insolvency
It is a well-established principle under the Insolvency Act 1986 (IA 1986) that if a company entered administration, this did not stop the clock on civil claims against it. A winding-up order, by contrast, does stop time running because once a company enters liquidation its assets are effectively held in trust for distribution to its creditors, who can then pursue their claims at a later stage. Under an administration, there is no equivalent trust created.
The duties and powers of an Administrator under the IA 1986 were amended by the Enterprise Act 2002 (EA 2002). The EA 2002 sought to shift the administration process to more of a rehabilitation tool as opposed to one of enforcement. To achieve this aim, it inserted Schedule B1 into the IA 1986. This gave an Administrator power to make distributions to creditors.
Contract Natural Gas Ltd v ZOG Energy Ltd
In the recent case of Contract Natural Gas Ltd v ZOG Energy Ltd [2025] EWHC 86 (Ch) (21 January 2025), Mr Andrew Twigger KC sitting as a Deputy Judge of the High Court, considered whether the amendments to the IA 1986 by Schedule B1 of the EA 2002 altered the legal principle concerning time running on claims in cases of administration. Given that Administrators now had the power to distribute assets to creditors, were those assets held in trust similar to when a company was placed in liquidation?
Mr Twigger KC’s attention was drawn to Goode, On Principles of Corporate Insolvency Law, paragraph 11-30, where it is explained that the Enterprise Act 2002 introduced a power to make a distribution to ordinary unsecured creditors with the permission of the Court, bringing administration closer to liquidation than it used to be. Goode comments that "it would seem that the statutory trust arising in a winding-up arises equally in an administration (at least from the time of notice of a distribution) although this is a matter of some controversy."
Ultimately, Mr Twigger KC rejected the argument that the powers conferred by Schedule B1 on an administrator to make distributions to creditors were in itself sufficient to create a trust over the assets. He reasoned that distributing assets was merely one way in which an administration could end. Unlike a liquidation, it was not guaranteed that the company's assets would be distributed to creditors even if this seemed likely at the outset.
Accordingly, it remains the position that time does not stop running on claims when a company enters administration.
Mr Twigger KC did suggest that a trust may arise, resulting in stopping time to bring a civil claim running if and when Administrators give notice that they planned to distribute assets. In Contract Natural Gas Ltd v ZOG Energy Ltd, this never occurred.
What This Judgment Means for Creditors
This is the first case to consider the time limitations on bringing a civil claim against a company in administration since the amendments to the IA 1986 were made by the EA 2002.
If you are a creditor of a company which has gone into administration, you will need to continue to be aware of the risks of a civil claim becoming time-barred and take appropriate action to prevent this by, for example, agreeing on a standstill, seeking a formal acknowledgement of the debt (in way that stops time running), or by seeking permission to issue proceedings and then agreeing on a stay.
How We Can Help
If you are in financial difficulties and facing insolvency, we can offer you clear, practical legal advice on how to navigate the law relating to debt recovery and complying with your legal obligations. Contact us on 0330 173 6983 or send us an email for more information.
