Effect of Administrative Restoration on Terminated Contracts

Depending on how a company was dissolved, there are two methods to restore a company to the Companies House register: administrative restoration and restoration by Court Order. A recent case has raised the question about the effect of administrative restoration on a terminated contract to which the dissolved company was party to.

In Bridgehouse (Bradford No 2) v BAE Systems Plc [2019] EWHC 1768 (Comm) the High Court had to decide the effect of the Companies Act 2006 (CA 2006) and in particular the provisions relating to administrative restoration which state that a dissolved company’s restoration to the register deems it never to have been dissolved in the first place.

Further reading: How To Restore A Company

In this particular case, BAE Systems Plc (BAE) agreed to procure the sale of two properties by one of its subsidiary companies to Bridgehouse (Bradford No 2) (BB2) for £93 million at a future date. This was documented by a written agreement between BAE and BB2. The agreement gave BAE a right to terminate in certain circumstances including if BB2 was struck off the Register of Companies or was otherwise dissolved.

A few years after entering into the agreement, BB2 was struck off the register for failure to file its accounts. Two days later, BAE served notice terminating the agreement. An application to restore BB2 by administrative restoration was then made successfully and BB2 commenced arbitration proceedings challenging BAE’s termination of the agreement on various grounds.

Companies Act 2006

The CA 2006 (and previous company law) makes clear that the restoration of a company can retrospectively change the legal character of events that happened between the company’s dissolution and restoration. Much of the previous case law pre-dates the introduction of the administrative restoration process in the CA 2006 but the rulings concern similar statutory provisions and again make clear that restoration of a company can affect certain events retrospectively. For example, in Orchidway Properties Ltd v Fairlight Commercial Ltd [2002] EWHC 1716 (Ch), the High Court held that a contract had not been repudiated by the dissolution of one of the parties to it, as this was to ignore the purpose of restoration, which was to keep the company’s commercial relationships on foot. The court also held that any termination of the same contract due to it being frustrated as a result of the dissolution was also reversed by the party’s restoration.

After careful consideration however, in this case the High Court held that where a party exercises a right to terminate a contract on the grounds that the counterparty to the contract has been dissolved, the later administrative restoration of the counterparty does not invalidate, or reverse, the contract’s termination. The High Court focussed on the following key points:

• The administrative restoration process had been intended to operate in cases where there would be a minimal effect on third parties.
• Previous cases that provided for a very wide effect of restoration were fact dependent. Accordingly, there was no binding authority, or even trend in case-law, that restoration should reverse all direct and indirect consequences of the original dissolution.
• By contrast, the authorities supported the view that restoration could not affect the secondary consequences of a company’s dissolution (such as those depending on another party’s subsequent choice).
• If the restoration process did reverse and invalidate the termination of a contract due to a party’s dissolution, this would deprive the parties of contractual certainty. It would also remove a party’s reasonable right to choose not to continue in business with a party that was insufficiently competent to take steps to remain on the register.

Comment

The judgment from this case is an important decision as it clarifies the effect of an administration restoration on a company and in particular on the benefit of contracts lost as a result of its dissolution. It appears that where a contract has been actively terminated by the non-defaulting counterparty then the administrative restoration does not override this express termination. In contrast, the pre-existing case-law still stands which allows a restored company’s contracts to continue where no default or active steps have been taken to terminate since the dissolution.

The court placed a lot of emphasis on the principle of freedom of contract although it would be useful to have a higher court’s authority on the point given how wide-reaching the wording in the CA 2006 is on administrative restoration. As it stands though, this decision gives some useful clarification to the current case-law.

If you would like to discuss a company restoration, then please contact BHW’s corporate team on 0116 289 7000 or email info@bhwsolicitors.com.