In Contract Natural GAS Limited (In Liquidation) v Zog Energy Limited (In Liquidation) [2025] EWHC 86 (Ch), the High Court considered whether changes to the administration regime, made by the Enterprise Act 2002[1], mean entry into administration pauses limitation in respect of claims against the company.
The court held that entry into administration does not create a statutory trust (as is the case in liquidation) and the limitation clock continues to run until such time as the company moves to liquidation. As such, even where a debtor has entered administration, creditors should remain mindful of limitation and, where necessary, take appropriate steps to protect their position.
Background
Contract Natural Gas Ltd (CNG) was an energy supply company. It supplied gas to various entities, including ZOG Energy Ltd (ZOG).
In 2013, CNG and ZOG entered into a master sales agreement (MSA), under which each supply of gas was deemed to be a separate contract, referred to in the MSA as a “Transaction”.
The MSA contained the following terms:
- 13.3 Subject to clause 13.9 the total liability of each party to the other and in respect of all claims arising under the matters set out in clause 13.1 shall not exceed the sum of £250,000.
- 13.5 The non-defaulting party shall only be entitled to bring a claim against the defaulting party where the non-defaulting party issues legal proceedings against CNG within the period of 12 months commencing on the date upon which ZOG ENERGY ought reasonably to have known of its entitlement to bring such a claim.
- 13.9 The limitation of liability set out in clause 13.3 shall not apply to any breach of ZOG ENERGY’s obligations under clauses 3 (exclusivity) or 10 (payment).
In December 2021, following the rise in global gas prices, both CNG and ZOG entered administration. In December 2022 and September 2023 respectively, both ZOG and CNG moved to creditors voluntary liquidation (CVL).
Claims
CNG submitted a proof of debt in ZOG’s administration in February 2022, for c.£1.4m in respect of 16 unpaid invoices relating to gas supplies up to the end of November 2021. After ZOG’s entry into CVL, ZOG’s liquidators rejected CNG’s proof on the basis that the claim was out of time under clause 13.5 of the MSA.
Meanwhile, with the (retrospective) consent of CNG’s administrators, ZOG issued proceedings against CNG in October 2022, seeking damages or liquidated damages of more than £10m for breach of contract, due to CNG’s failure to supply gas under the MSA from 30 November 2021. The parties agreed that the proceedings would be stayed indefinitely, with ZOG proving in CNG’s administration. ZOG submitted a proof of debt in August 2023 for c.£13m, later revised down to c.£10m. CNG’s liquidators subsequently admitted ZOG’s claim for £250,000 only, on the grounds that its claim was subject to the liability cap in clause 13.3 of the MSA. Furthermore, CNG said that the amount should be set off against CNG’s claim against ZOG, therefore reducing ZOG’s claim to zero.
CNG and ZOG issued separate applications under Rule 14.8 of the Insolvency (England and Wales) Rules 2016 (to challenge the other’s rejection of their proof of debt claims) and a hearing took place before Andrew Twigger K.C., sitting as a Deputy Judge of the High Court, in November 2024.
Judgment
Liability cap
ZOG argued that the liability cap in clause 13.3 applied to each separate Transaction, rather than acting as an overall cap on claims under the MSA. ZOG submitted that if the cap was to apply to all claims, it could be exhausted early on in the relationship, meaning that CNG would be free to act in breach of the MSA for the remainder of the contractual term. ZOG argued that this would produce an uncommercial outcome contrary to the intentions of the parties. In the alternative, it argued that clause 13.3 did not apply in any event given that ZOG’s claim fell within the exception relating to payment at clause 13.9. On the other hand, CNG emphasised that the wording of clause 13.3 sought to limit the “total” liability of “all claims”.
Held
The liability cap at clause 13.3 of the MSA applied to all claims made by either party, irrespective of the number of Transactions. Whilst there was no doubt that under the MSA each Transaction constituted a separate contract, the Judge was not persuaded that the terms of the MSA (or any individual term) were incorporated into the contract for each Transaction. The Judge was also not persuaded that a total cap of £250,000 would have been uncommercial, certainly at the time the MSA was agreed, and noted that an individual application of the liability cap to each Transaction “rapidly ceases to be much of a cap at all”[2]. The Judge rejected ZOG’s argument that clause 13.9 excluded the limitation under clause 13.3 in respect of payment due from CNG to ZOG, as CNG’s alleged failure to pay liquidated damages to ZOG could not be described as a breach of ZOG’s payment obligations.
Limitation
CNG argued that its claim was not time barred by clause 13.5 of the MSA on the basis that:
- Provided a claim is not time barred when a company enters administration, time stops at that moment for the purpose of bringing the claim.
- Even if the clock did not stop running on ZOG entering administration, ZOG’s acknowledgment of the debt in its statement of affairs in January 2022 reset the clock on limitation in accordance with Section 29(5) of the Limitation Act 1980 (LA), so that the claim was not time barred at the point of ZOG’s CVL in December 2022.
- Clause 13.5 of the MSA acted to limit claims against CNG, not claims by CNG; or, if it did limit claims by CNG, it only limited CNG’s ability to bring a claim and did not extinguish the underlying liability.
Held
Effect of administration
CNG’s counsel argued that the limitation position in an administration should mirror that in a liquidation. A long line of authorities has held that a statutory trust of a company’s property comes into effect, for the benefit of its creditors, on the making of a winding up order. Limitation periods therefore cease to run as of that date. As the post-Enterprise Act 2002 administration regime enables an administrator to make distributions (which was not previously possible), it was argued that the position in administration should mirror that in a liquidation.
After a thorough consideration of the relevant authorities (and the difference between the pre-and post-Enterprise Act 2002 administration regime), the court reached the conclusion that no equivalent statutory trust arises on entry into an administration, and accordingly (although the moratorium on claims against companies in administration might suggest otherwise), the contractual or statutory limitation period does not stop running when a company enters administration.
Although an administrator has the power to make distributions (with the permission of the court, in relation to unsecured creditors), they are not under a duty to do so “… there is no inevitability under Schedule B1 [of the Insolvency Act 1986] that an administrator will make a distribution to creditors. Consequently, there can be no statutory trust.”[3] The judge did, however, contemplate the possibility that a statutory trust may come into operation at the point at which an administrator gives notice of intention to make a distribution (and therefore a distribution becomes ‘inevitable’), although that was not the case here.
Contractual limitation
Section 29(5) of the LA (which provides that where a person liable for a debt or other liquidated pecuniary claim acknowledges or makes any payment in respect of it, the right of action shall be treated as having accrued on and not before the date of the acknowledgement or payment) was held not to apply given the existence of a contractual limitation period. The Judge said that the wording of the MSA did not suggest that the parties had intended section 29 to apply and that it “would only be relevant if the parties had agreed it should be”[4]. As such, any acknowledgment of the claim in the statement of affairs did not restart the limitation period at clause 13.5.
The Judge considered that the wording of clause 13.5 had been subject to a drafting error[5], as, read literally, the wording would require CNG to bring a claim against itself within 12 months of ZOG becoming aware of its entitlement to do so. Due to the illogical consequences of a literal interpretation, it was held that clause 13.5 applied to both parties equally. Where a claim was time barred, the effect of clause 13.5 was not to extinguish the liability, but only the right to bring an action. Consequently, CNG’s right to deduct the sum of a time barred claim from any sums paid to ZOG in respect of ZOG’s proof of debt in CNG’s liquidation remained intact.
Conclusion
This case serves as a reminder to creditors to be alive to the risk of claims being time-barred by limitation periods, even where a debtor has entered administration and they are prevented from bringing claims by the administration moratorium. It is particularly important to keep note of limitation where any relevant contracts contain a limitation period shorter than that provided by the LA, such as in this case.
In the event that a debtor enters administration and limitation may become an issue in pursuing a claim, it is important for creditors to seek timely legal advice as to the appropriate steps to take, which may include seeking to agree a standstill with the administrators, or seeking permission to issue protective proceedings.
Helen Martin