Company restoration orders under section 1029 Companies Act: do you have standing?

Company restoration orders under section 1029 Companies Act: do you have standing?

There are as many opinions as there are experts: issues to consider when drafting reasoned legal opinions

The recent High Court decision in Hellard & Anor v Registrar of Companies & Ors [2020] EWHC 1561 (Ch) (23 June 2020) serves as a useful reminder to any party seeking the restoration of a company to the Register of Companies that it is important first to consider whether such party has the requisite standing to make the application. 

While this is normally not a point of contention, it was a matter that the proposed liquidators in the instant case failed adequately to demonstrate to the court.

Background:

The claimants were insolvency practitioners (the Claimants) who were seeking to restore 31 companies to the Register of Companies pursuant to section 1029 of the Companies Act 2006 (CA 2006). Assuming the orders for restoration were granted by the court, the Claimants were also seeking to be appointed liquidators under section 108 of the Insolvency Act 1986 (IA 1986). 

The purpose of the restorations and subsequent appointments was to permit the investigation of certain fees charged by former insolvency officeholders of the companies, with a view potentially to clawing back these fees. Interestingly, the Claimants had no previous relationship with the companies they were seeking to restore – at their own time and expense, they had identified matters from publicly available records which, they believed, appeared to warrant further investigation.

HMRC was a creditor of each of the companies, was supportive of the Claimants’ applications and would have had standing to seek the proposed restoration orders itself. However, it was not party to the applications and nor was it providing funding for these. 

Section 1029 Companies Act 2006:

Section 1029(2) of the CA 2006 sets out which parties have locus (or standing) to bring a restoration application in respect of a company which has been dissolved or struck off the Register of Companies. This includes the secretary of state, former directors, parties with interests in certain land or contracts, parties with potential legal claims and creditors (among others). There is also a general “sweep up” provision included within section 1029(2), which provides that an application for restoration may be made by “any other person appearing to the court to have an interest in the matter”

The Claimants case:

The Claimants argued that they had standing to make the restoration applications on the basis that:

  • Their interest in seeking the restorations was concomitant with that of HMRC. HMRC supported the applications but could not carry out the investigations itself, so required the appointment of independent insolvency practitioners (the Claimants) in order to investigate the conduct of the former officeholders.
  • They had sufficient standing to apply for appointment as replacement office holders under section 108 IA 1986 (a point accepted by all parties), but before that could happen, the companies themselves had to be restored to the Register of Companies.
  • The general “sweep up” provision under section 1029(2) CA 2006 was broad enough to encompass any number or type of applicants - including the Claimants.
  • The restoration of the companies and subsequent appointment of the Claimants would be entirely consistent with the statutory purpose of the restoration process - which was to permit the distribution of an asset which belonged to the company but which had been previously overlooked.
  • The Claimants’ appointment as liquidators of the restored companies was in the wider public interest, since the former liquidators– whose fees it was proposed to be investigated – would have the requisite standing to make the restoration applications but were opposing these (thereby preventing investigation of their previous conduct).

Decision:

The court held that the Claimants did not have the requisite standing to seek the restoration orders.

The fact that HMRC was a creditor of the companies, and was supportive of the applications, did not mean the Claimants had standing to bring the claims in their own names. The Claimants were effectively “strangers” to the companies, having had no prior relationship with them before making the restoration applications which the court was considering. To hold that the Claimants had standing in this case, ran the risk (in the court’s view) of opening the floodgates to similar applications from parties with no tangible interest.

Further, the fact that it was accepted that the Claimants would have standing to seek appointment as liquidators of the companies (if restored) pursuant to section 108 IA 1986 did not constitute them parties with a sufficient interest in the restoration applications themselves. These were entirely separate issues and should not be conflated. 

In its judgment, the court considered what type of interest an applicant would need to demonstrate in order to establish the requisite standing. The court determined that, as a matter of general principle, a proprietary or financial interest in the proposed restoration would need to be shown. However, the court noted that this would be a very fact-specific issue that would need to be dealt with on a case-by-case basis, and therefore it would be unhelpful to set out strict rules in relation to this.

David Steinberg, partner and co-head of the restructuring and insolvency practice at Stevens & Bolton LLP comments that:

Whilst the section 1029 restoration process is normally pretty straightforward, this case highlights the importance of first establishing that a party seeking a restoration order has the required standing to do so. In taking it upon themselves to pursue this application (effectively as prospective fiduciaries for those creditors who would ultimately benefit from the investigations which the Claimants intended to carry out once appointed as new liquidators to the companies), the Claimants in this case, had incorrectly assumed that their standing to seek appointment as liquidators pursuant to section 108 IA 1986, by implication, meant they also had standing to seek the restoration orders in their own names. As the court highlighted in its judgment – these are entirely separate issues and should not be conflated. 

While the court’s decision effectively prevented the investigation of the former office holders’ conduct in this case, it would of course be open to HMRC – or indeed to any other creditor of the relevant companies – to pursue such applications, if they chose to do so.   

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