Dissolved companies and company restoration
Thousands of companies are struck off the register of companies every year. Dissolving a company can affect multiple interested parties, including the former directors, creditors and litigants. The case for restoring a company can be compelling; some examples are set out below, together with some of the key issues that need to be taken into account when making the decision to restore.
Reasons for company restoration
Often, the former members or directors of a company have an interest in restoring it. Probably the most common example is where the company has been struck off because it failed to file its accounts and annual returns but its business continues to trade. Those considering this should think carefully about the implications of restoration. For example, the Registrar of Companies will not restore the company until any penalties for failure to file documents due at the date of striking-out are paid.
A third party may want to restore a company where it wants to issue proceedings against a company that has been struck off. However, a struck-off company has no ‘legal personality’: this means a claimant cannot issue proceedings against it. Often, it is not worthwhile pursuing a struck-off company because even when restored, it is unlikely to have any assets. However, if the company is insured, its insurance may still cover the claim. If a claim against an insured, struck-off company has failed to settle and a claimant wants to issue proceedings, it may well be worth restoring the company. However, it is important to make an early assessment of the limitation period of the claim to be pursued on restoration to ensure the limitation period has not passed.
The above are only two examples of where it might be appropriate to restore a company.
Process of restoring a company
The process for restoring a company has been simplified in recent years. The Companies Act 2006 sets out two procedures for the restoration of a company:
1. Of the two, administrative restoration is the simplest way of restoring a company but it is only available in limited circumstances. Only a former member or director of the company at the time of the dissolution can apply and the registrar must receive the application no more than six years after the dissolution date. There are other criteria which must be satisfied.
2. Company restoration by court order allows a wider (but not unlimited) group of interested parties to apply to restore the company. As with administrative restoration, other important conditions apply, including time limitations, which are different from the administrative procedure. Restoration is unlikely to take less than a couple of months and could take significantly longer – particularly where the background to the application is more complicated or the applicant fails to provide sufficient information. The application process usually includes filing a claim form, witness statements and form of undertakings as well as corresponding with the Treasury Solicitor and the court.
Whatever the reason for restoring a company, it is important to make an early assessment of any time restrictions, as well as weighing up the advantages, costs and risks of restoring the company.
Although the process has been simplified in recent years, it is not always straightforward, particularly if the applicant does not have legal expertise. A lawyer is able to advise a client, so that they can make an informed decision about whether to make the application and ensure the correct steps are taken so that the application process is completed expeditiously.
For more information on the issues raised in this article or on restoring a company, please contact us by calling 0117 904 6000.
Posted on Aug 21st, 2013 by Lyons Davidson