ICAEW.com works better with JavaScript enabled.

Case law: Termination of contract after company struck off remained effective even though company was later restored

Limited companies signing a contract should ensure they fully understand the effect of a clause in the contract allowing the other to terminate it if they are struck off the Companies Register - even if they are subsequently restored to the Register.

September 2019

This update was published in Legal Alert - September 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

A contract between a buyer and seller of property (both limited companies) said that the seller could terminate the contract if the buyer was struck off the Companies Register and dissolved.

The buyer was, in fact, struck off the Register some years later. Two days after the striking off, the seller purported to serve a notice to terminate the contract. However, within three weeks a court application had been made to restore the company to the Register, which was successful.

Generally, when a struck-off company is restored to the Register, company law says it should be treated as if it had never been struck off. The buyer therefore argued that the seller’s notice was of no effect because the restored company was to be treated as if it had not been struck off, so there were no grounds for serving the notice.

The court disagreed with the buyer’s argument. It said that a restoration will undo the ‘direct or automatic effects’ of a striking off and dissolution. The intention was to avoid problems that a gap in the existence of the company would cause if there were no such legal rule.

However, the seller’s termination of the contract in this case was not an automatic consequence of the buyer’s dissolution. Rather, it was a consequence of the seller choosing to end the contract, and following the contractual process required to do so.

The court said that if restoring the company invalidated the notice to terminate, the clause in the contract allowing termination if the buyer was dissolved would have been ‘deprived of effect’, and the seller would be in breach of contract. The parties could not have intended a restoration to render a third party’s contractual rights ineffective.

The same rationale would apply if a company was restored to the Register by any other process.

Operative date

  • Now

Recommendation

  • Parties to a contract should ensure they fully understand the effect of a clause in the contract allowing either to terminate their contract if the other party is dissolved, even if it is subsequently restored.

Case ref: Bridgehouse (Bradford No.2) v BAE Systems Plc [2019] EWHC 1768

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

Copyright © Atom Content Marketing