Friday 12 July 2019

UK: England and Wales: the effect of administrative restoration on contract termination

Judgment was delivered yesterday by Mrs Justice Cockerill in Bridgehouse (Bradford No.2) v BAE Systems Plc [2019] EWHC 1768 (Comm). The decision is an important one on the consequences that flow from a company's return to the Register of Companies under section 1024 of the Companies Act 2006.

The Registrar of Companies dissolved a company, BB2, and struck it off the Register on 31 May 2016, in exercise of a power given by section 1000 ("Power to strike off company not carrying on business or in operation") of the Companies Act 2006. This was done following BB2's failure to submit accounts on time and its failure to respond to a notice from the Registrar sent to its registered office (the address had not been updated by BB2, meaning that the notice was sent to an address no longer functioning as its registered office).

A contract between BAE and BB2 contained a clause - number 20 - providing BAE with the right to terminate the agreement should BB2 suffer an event of default including "being struck off the Register of Companies or being dissolved or ceasing for any reason to retain its corporate existence". On 2 June 2016, BAE served BB2 notice of contract termination.  An application was then made for the administrative restoration of BB2 to the Register under section 1024 of the Companies Act 2006. This was successful and BB2 returned to the Register on 28 July 2016.

What effect did restoration have on BAE's termination of the contract?  This question was first answered by an Arbitrator and the answer given - with reference to section 1028 of the 2006 Act, which provides that the "general effect" of administrative restoration is that the company "is deemed to have continued in existence as if it had not been dissolved or struck off the register" - was that BB2's restoration to the Register did not undo or reverse the termination of the contract.

BB2 appealed, pursuant to section 69 ("Appeal on point of law") of the Arbitration Act 1996 and with the agreement of BAE, and this was heard by Mrs Justice Cockerill. Her Ladyship agreed with the Arbitrator. Restoration did not undo the termination. Section 1028 was not mandatory and of universal application. It was necessary, she stated, to make a distinction between direct and indirect consequences. To quote directly (paras. [115] and [116]):
..... The deeming provision [section 1028] will have very wide application indeed. It will be (as it has been in the authorities) taken to undo the automatic consequences of a removal from the register or dissolution which is later undone in circumstances to which the deeming provision applies. But there will be situations where consequences arise which are not automatic. A lease will become forfeit not because of the fact of the dissolution, but because, either consequent on that dissolution or independently of it, the lessee does not pay its rent. A contract will be repudiated for a similar reason and that repudiation will be accepted – as happened in Contract Services. Or, as in this case, a contractual party will have a choice as to whether to terminate a contract simply because of the removal from the register. The termination will not flow from, or be automatically a consequence of dissolution. It will occur where the party decides to make that decision and takes the step necessary to bring about that termination. Such consequences are, in my view, outwith the deeming provision."

[The reference to Contract Services in this quotation is a typographical error in the judgment as it appears on BAILII; it ought to read Contract Facilities - shorthand for Contract Facilities Ltd v Rees [2002] EWHC 2939 (QB), one of the decisions cited in the judgment].

Update (19 July 2019) - a summary of the decision has been published by the ICLR: see here.

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