Companies sued during dissolution

Posted: 1st August 2012

The Court of Appeal has confirmed that section 1032(1) of the Companies Act 2006 has the effect of retrospectively validating legal action commenced against a company during the period of its dissolution.

An employee (the claimant) issued proceedings seeking compensation for noise-induced hearing loss against the company for which he worked (the defendant) five months after the company was struck off the Register of Companies and dissolved.

The proceedings were served upon the company and the claimant subsequently successfully applied to have the company restored to the Register under section 1029 of the Act. At the Court of Appeal it was argued on behalf of the company that the proceedings launched by the claimant were invalid because they had been issued and served during the period of the company’s dissolution.

In dismissing the company’s appeal, the court upheld the full ‘sweeping effect’ of section 1032(1) which states that an application to the court for restoration of a company to the register may be made at any time for the purpose of bringing proceedings against the company for damages for personal injury.

Lord Justice Munby said: ‘The sweeping effect of section 1032(1) is illustrated by section 1032(3) which enables the Companies Court to make directions ‘for placing the company and all other persons in the same position (as nearly as may be) as if the company had not been dissolved or struck off the register.’

‘That, as it seems to me, is a powerful and illuminating indication of the policy which Parliament had in mind’.

The judge, sitting with Lords Justice Etherton and Lewison, concluded: ‘In my judgment, the effect of section 1032(1) is retrospectively to validate an action purportedly commenced by or against a company during the period of its dissolution’.