Company Pays Crushing Price for Failing to File its Accounts On Time
The consequences of a company being struck off the Companies House register – even temporarily for nothing more than an administrative failure – can be catastrophic. In a case on point, a company that suffered that fate sacrificed the profits it hoped to earn on a multi-million-pound property contract.
The company contracted to purchase certain surplus property assets from a large industrial conglomerate for £93 million. The date set for the completion of the sale was some years in the future. The contract entitled the conglomerate to terminate it if an event of default arose. The company being struck off the register was specifically included in the contractual definition of such an event.
The company was struck off the register and dissolved after it missed the deadline for filing its accounts. It did not receive notice that it was at risk of such a step being taken because it had failed to inform Companies House of a change of its registered address. The conglomerate responded by terminating the contract.
The company later succeeded in an application for administrative restoration to the register and challenged the conglomerate's action. However, after the dispute was submitted to arbitration, the arbitrator found that the restoration did not have retrospective effect and that the contract had been validly terminated, an event of default having arisen.
In challenging the arbitrator's decision before the High Court, the company pointed to Section 1028(1) of the Companies Act 2006, which states that the general effect of a company's administrative restoration to the register is that it is deemed to have continued in existence throughout, as if it had not been struck off or dissolved in the first place.
In ruling on the matter, the Court acknowledged that there was no direct authority on the central issue raised by the case. However, it found that Section 1028(1) was neither mandatory nor of universal application and did not serve to retrospectively invalidate the conglomerate's notice of termination.
The company's interpretation of Section 1028(1), if correct, would cause considerable uncertainty and practical difficulties, effectively depriving common contractual clauses such as the one exercised by the conglomerate of practical effect. In the circumstances, the arbitrator's decision was correct and the company's appeal was dismissed.